Should We Purchase That New Copier? Campus Print Shop is thinking of purchasing a new, modern copier
Question:
Should We Purchase That New Copier?
Campus Print Shop is thinking of purchasing a new, modern copier that automatically collates pages. The machine would cost $22,000 cash. A service contract on the machine, considered a must because of its complexity, would be an additional $200 per month. The machine is expected to last eight years and have a resale value of $4,000. By purchasing the new machine, Campus would save $450 per month in labor costs and $100 per month in materials costs due to increased efficiency. Other operating costs are expected to remain the same. The old copier would be sold for its scrap value of $1,000. Campus requires a return of 14% on its capital investments.
1. As a consultant to Campus, compute:
a. The payback period.
b. The unadjusted rate of return.
c. The net present value.
d. The internal rate of return.
2. On the basis of these computations and any qualitative considerations, would you recommend that Campus purchase the new copier?
Step by Step Answer:
Accounting Concepts And Applications
ISBN: 9780324376159
10th Edition
Authors: W. Steve Albrecht, James D. Stice, Earl K. Stice, Monte R. Swain