Question

The Lansing Community Colllege registrar's office is considering replacing some Canon copiers with faster copiers purchased from Kodak. The office's 4 Canon machines are expected to last 5 more years. They can each be sold immediately for $700; their resale value in 5 years will be zero. The Canon machines require 4 operators; they are paid $7.80 an hour each and work 38 hours machine. Supplies cost $1,440 a year for each machine. week and 51 weeks year. The machines break down periodically, resulting in annual repair costs of $1,020 for each The total cost of the new Kodak equipment will be $118,000. The equipment will have a life of 5 years and only 2 reqular operators. Kodak has offered the college a maintenance contract that covers all machine breakdowns; the cost of the contract is $1,020 per year. Total cost for all total dispotl value at that time of $2,700. The Kodak system will require supplies will be $3,840 per year Required Assuming a discount rate of 14%, compute the difference between the net present value if the registrar's office keeps the Canon copiers and the net present value if it buys the Kodak copiers. [Note: If your results favor keeping the Canon copiers, enter your net present value difference as your net present value difference as a negative number.] positive number; if your results favor buying the Kodak copiers, enter This is a problem with mutually exclusive projects. You only have to do the net present value method, so you can evaluate the projects separately, or you can combine them. But if you evaluate them separately, the answer you submit must be the difference in the two net present values (see the directions for the correct sign to use). As you determine the cash flows, make sure that you use the correct project life and that you treat the current disposal value of the current machines properly The Lansing Community College registrar's office is considering replacing some Canon copiers with faster copiers purchased from Kodak. The office's Canon machines are expected to last 5 more years. They can each be sold immediately for $700; their resale value in years will be zero. The Canon machines require 4 year. The machines break down periodically, resulting in annual repair costs of $1,020 for each operators; they are paid $7.80 an hour each and work 38 hours a week and 51 weeks machine. Supplies cost $1,440 a year for each machine. The total cost of the new Kodak equipment will be $118,000. The equipment will have a life of 5 years and a total disposal value at that time of $2,700. The Kodak system will require only 2 reqular operators. Kodak has offered the college a maintenance contract that covers all machine breakdowns; the cost of the contract supplies will be $3,840 per year. $1,020 per year. Total cost for all Required Assuming a discount rate of 14%, compute the difference between the net present value the registrar's office keeps the Canon copiers and the net present value if it buys the Kodak your results favor buying the Kodak copiers, enter your net present value difference as a negative number 1lers, enter your net present value difference as a positive number;

Answer 1

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				Existing		New
		Period	PVF 14%	Amount	PV	Amount	PV
Labor Cost	4*$7.8*38*51	1-5	3.43308	$              -60,466	$       -207,583
Annual Repair Cost	$1,020*4 Machines	1-5	3.43308	-4,080	$         -14,007
Supplies	$1,440*4 Machines	1-5	3.43308	-5,760	$         -19,775
Resale value of Old Machine	$700*4 Machines	-	1.00000			$             2,800	$      2,800
Cost of New Machine		-	1.00000			$       -118,000	$-118,000
Labor Cost	2*$7.8*38*51	1-5	3.43308			$         -30,233	$-103,792
Annual Repair Cost		1-5	3.43308			$           -1,020	$    -3,502
Supplies		1-5	3.43308			$           -3,840	$ -13,183
Residual Value of new Machine		5	0.51937			$             2,700	$      1,402
Net Present Value					$       -241,365		-234,274
Difference of NPV (Favor New)	$                    -7,091