Question

The Lansing Community College registrar'ss office is considering replacing some Canon copiers with faster copiers purchased from Kodak The office's 4 Canon machines are expected they are paid $7.80 an hour each and work 39 hours a week and 50 weeks $1,200 a year for each machine. last 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; year. The machines break down periodically, resulting in annual repair costs of $1,140 for each machine. Supplies cost The total cost of the new Kodak equipment will be $115,000. The equipment will have a life of 5 years and a total disposal value at that time of $2,100. The Kodak system will require only 3 reqular operators. Kodak has offered the college a maintenance contract that covers all machine breakdowns; the cost of the contract is $840 per year. Total cost for all supplies will be $3,000 per year Required Assuming [Note: If your results favor keeping the Canon copiers, enter your net present value difference as a positive number; if your results favor buying the Kodak copiers, enter your net present value difference as a negative number.] 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.

Answer 1

A Determie the net present value of keeping the Cannon copiers as follows: 1 2 3 Operator's annual wages 4 Annual repair cost 60840 4560 5 Annual supplies cost 4800 6 Total annual cash outflow 70200 Present value of an ordinary annuity of $1 at 14% for 5 periods 7 3.4331 Net present value of keeping Canon copiers 8 241004 9 10 Determine the net present value of buying the Kodak copiers as follows: 11 12 Cost of new Kodak equipment 115000 13 Less: Sale price of four Canon machines 2800 14 Net investment in Kodak equipment 112200 15 16 Operator's annual wages 45630 17 Annual cost of maintenance contract 840 18 Annual supplies cost 3000 19 Total annual cash outflow 49470 20 Present value of an ordinary annuity of $1 at 14% for 5 periods 3.4331 21 Present value of annual cash outflows 169835 22 23 Disposal value of the equipment after 5 years 2100 24 Present value of $1 at 14% for 5 periods 0.5194 25 Present value of the disposal value of the equipment 1091 26 27 Net present value of buying the Kodak equipment 280945 28 29 Differnce between the net present value of the two options 39941

Above figures have been calculated in the following manner:

A B Determie the net present value of keeping the Cannon copiers as follows: 1 2 3 Operator's annual wages 4 Annual repair cost =(7.8*39*50)*4 -1140 *4 5 Annual stpplies cost 1200*4 6 Total annual cash outflow -B3+ B4+ B5 Present value of an ordinary annuity of $1 at 14% for 5 periods 7 3.4331 Net present value of keeping Canon copiers B6*B7 8 9 10 Determine the net present value of buying the Kodak copiers as follows: 11 12 Cost of new Kodak equipment 115000 13 Less: Sale price of four Canon machines =700*4 14 Net investment in Kodak equipment -B12 - B13 15 16 Operator's annual wages (7.8*39*50)*3 17 Annual cost of maintenance contract 840 18 Annual supplies cost 3000 19 Total annual cash outflow =B16+B17+B18 20 Present value of an ordinary annuity of $1 at 14% for 5 periods 3.4331 21 Present value of annual cash outflows -B19* B20 22 23 Disposal value of the equipment after 5 years 2100 24 Present value of $1 at 14% for 5 periods 0.5194 25 Present value of the disposal value of the equipment -B23 *B24 26 27 Net present value of buying the Kodak equipment -B14+B21- B25 28 29 Differnce between the net present value of the two options -B27-B8