A replacement decision must be made for one of the copy machines at the Speedy Copy Service. After the initial screening of alternatives, two copy machines remain as contenders - a new model from Xerox and a reconstructed IBM. The relevant information on the two machines are as follows:

	Xerox	IBM
Installed Price	$14,500	$15,500
Estimated costs	$2,300 plus $0.01/copy	$4,050
Estimated salvage value	$1,500	$2,500
Estimated useful life	5 years	5 years

Speedy Copy expects to charge customers $0.05 per copy and sell 180,000 copies annually, however, they are uncertain about their service volume estimate. The $0.05 per copy they expects to charge customers and the maintenance & usage fees are not expected to change over the next five years. Speedy copy requires a minimum pre-tax rate of return of 16% on its investments.

I have solved part 1 and 2. Need some guidance on parts 3 and 4.

REQUIREMENTS

1. Determine the Net Present Value (NPV) for the Xerox copier for estimated volumes starting from 140,000 copies/year to 200,000 copies/year, in increments of 5,000 copies.

	0	1	2	3	4	5	6	7	8	9	10	11	12
# of copies	140000	145000	150000	155000	160000	165000	170000	175000	180000	185000	190000	195000	200000
Revenue	7000	7250	7500	7750	8000	8250	8500	8750	9000	9250	9500	9750	10000
Cost	3700	3750	3800	3850	3900	3950	4000	4050	4100	4150	4200	4250	4300
Profit before Tax	3300	3500	3700	3900	4100	4300	4500	4700	4900	5100	5300	5500	5700
	Year	$	PV	Totatl PV
	0	-14500	1	-14500
	1	3300	0.862	2844.6
	2	3500	0.743	2600.5
	3	3700	0.641	2371.7
	4	3900	0.552	2152.8
	5	4100	0.476	1951.6
	6	4300	0.41	1763
	7	4500	0.354	1593
	8	4700	0.305	1433.5
	9	4900	0.263	1288.7
	10	5100	0.227	1157.7
	11	5300	0.195	1033.5
	12	5500	0.169	929.5
	13	5700	0.145	826.5
				7446.6	NPV

2. Determine the (NPV) for the IBM copier for estimated volumes starting from 140,000 copies/year to 200,000 copies/year, in increments of 5,000 copies.

	0	1	2	3	4	5	6	7	8	9	10	11	12
# of copies	140000	145000	150000	155000	160000	165000	170000	175000	180000	185000	190000	195000	200000
Revenue	7000	7250	7500	7750	8000	8250	8500	8750	9000	9250	9500	9750	10000
Cost	4050	4050	4050	4050	4050	4050	4050	4050	4050	4050	4050	4050	4050
Profit before Tax	2950	3200	3450	3700	3950	4200	4450	4700	4950	5200	5450	5700	5950
	Year	$	PV	Totatl PV
	0	-14500	1	-14500
	1	2950	0.862	2542.9
	2	3200	0.743	2377.6
	3	3450	0.641	2211.45
	4	3700	0.552	2042.4
	5	3950	0.476	1880.2
	6	4200	0.41	1722
	7	4450	0.354	1575.3
	8	4700	0.305	1433.5
	9	4950	0.263	1301.85
	10	5200	0.227	1180.4
	11	5450	0.195	1062.75
	12	5700	0.169	963.3
	13	5950	0.145	862.75
				6656.4	NPV

3. From your answers to the above, determine which copier you would recommend to Speedy at an annual volume of 160,000, 180,000, & 200,000 copies

4. Explain why the decision is different at different volumes.

Note:

This is a computer assignment that can be easily done using a standard spreadsheet software such as Excel. Estimated information for capital budgeting purposes is flexible and fluid and may change as managers have access to additional information. If the above capital budgeting problem was computed manually, and a change was made in a key number, the entire problem would have to be recomputed. This would be a redundant and time-consuming exercise. Instead, if a spreadsheet template, employing simple formulas, was constructed, a change could be made in a matter of seconds and the answers would be recomputed automatically.

This assignment will have two parts, the first comprising of the data-entry section, where you will enter the above data. The second part will be the capital budgeting template, which will ONLY contain formulas that are linked to the data-entry section. I recommend you test your template upon completion, i.e. change a key number in the data-entry section and see if the numbers in the template recompute correctly.