Question

5.42 Nighhigh Newsagent wants to replace its cash register and is currently evaluating two models that seem reasonable. The information on the two alternatives, CR1000 and CRX, is shown in the table. CRX $1100 $440 S60 CR1000 $680 $245 $35 in year 1, increasing by S10 each year thereafter 4 vears $100 First cost Annual savings Annual maintenance cost Service life Scrap value 6 years $250 (a) If Nighhigh Newsagent's MARR is 10 percent, which type of cash register should it choose? Use the present worth method (b) For the less preferred type of cash register found in part (a), what scrap value would make it the preferred choice?

Answer 1

a)

For this we will be calculating the NPV (Net present value) for both the cash registers.

PV = Future Value / (1+ discount rate)^year

We will calculate PV of terminal value also.

After calculation of both the NPV, we can see which option is better.

Please consider below screen shot for the calculation used. Formulae have been written in the excel screen shot.

Clearly we can see that CRX is more profitable and hence we should be going for CRX.

b)

In the excel, keep on altering the scrap value for CR1000, until the NPV (CR1000) > NPV (CRX).

This will give us the scrap value of $1105.

NPV (CR1000) for this scrap value will be $696.62

Please ask in case of any doubt