3M Company develops, manufactures, and markets various products worldwide. It operates through four business segments: Safety & Industrial, Transportation & Electronics, Health Care, and Consumer. 3M has budgeted for a new copier this year. 3M will pay $45,000 for the new copier, which is expected to last 7 years. Annual maintenance costs will total $1,000 a year. Labor cost savings for back office staff and a front desk receptionist will be $6,000 and $5,000 a year, respectively. The copier will have a residual value of $5,000 at the end of 7 years. The accountant at 3M has established the cost of capital (required rate of return for investors) for the firm at 10 percent.

Required:

Calculate the NPV of the project and briefly discuss whether to accept or reject the project.

Question

3M Company develops, manufactures, and markets various products worldwide. It operates through four business segments: Safety & Industrial, Transportation & Electronics, Health Care, and Consumer. 3M has budgeted for a new copier this year. 3M will pay $45,000 for the new copier, which is expected to last 7 years. Annual maintenance costs will total $1,000 a year. Labor cost savings for back office staff and a front desk receptionist will be $6,000 and $5,000 a year, respectively. The copier will have a residual value of $5,000 at the end of 7 years. The accountant at 3M has established the cost of capital (required rate of return for investors) for the firm at 10 percent.

Required:

Calculate the NPV of the project and briefly discuss whether to accept or reject the project.