Exercise 2-2 Cost comparison method

- Comparison ofalternatives with salvage values A company is undertaking an investment appraisal for a new copy machine. It estimates the relevant decision data of the alternatives to be as in the table:

Copy machine A Copy machine B Initial outlay € 10,000 € 20,000 Maintenance costs per year € 2,000 € 500 Costs per copy € 0.05 € 0.03 Amount of copies per year 10,000 10,000 Economic life 5 years 5 years Interest rate 7.5 % 7.5 %

a) Evaluate the purchase of the respective copy machine using the cost comparison method.
To start with, ignore salvage values.

b) Consider further that the used copy machines can be sold at the end of their useful life:
- Salvage value copy machine A: € 500 - Salvage value copy machine B: € 5,000