Bold is is a problem with mutually exclusive projects. You only have to do the n
ID: 2615662 • Letter: B
Question
Bold is 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. And finally, read everything very carefully; some costs are expressed per machine, some for all machines, some monthly, and some annually Thi The Lansing Community College 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 $900; their resale value in 5 years will be zero. The Canon machines require 4 operators; they are paid $8.00 an hour each and work 38 hours a week and 50 weeks a year. The machines break down periodically, resulting in annual repair costs of $1,200 for each machine. Supplies cost $1,440 a year for each machine. The total cost of the new Kodak equipment will be $119,000. 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 3 regular 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 $3,240 per year. Assuming a discount rate of 12%, 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 a positive number; if your results favor buying the Kodak copiers, enter your net present value difference as a negative number.]Explanation / Answer
Calculating net present value for the two options:
Option1:-Registrar's office keeps the canon copier
Option2:-Buys the kodak copier
Cash outflow to buy new kodak= Purchase cost - sale value of old machine= 119000-(900*4)= $116300
Thus the diff. between NPV of option is = 293815.82 - 257181.44 = 36634.38
& option 1 i.e keeping the canon copiers is better then the buying option.
Year Operators expense Annual Repair expense Supplies Cost Total Expense PVF@12% PV 1 60800 4800 5760 71360 0.893 63724.48 2 60800 4800 5760 71360 0.797 56873.92 3 60800 4800 5760 71360 0.712 50808.32 4 60800 4800 5760 71360 0.635 45313.6 5 60800 4800 5760 71360 0.567 40461.12 NPV 257181.44