Question
Pinkos Copying Company offered you a 5-year duplicating services contract that would provide 10,000 copies per year at a cost of $0.09 per copy. As
Pinkos Copying Company offered you a 5-year duplicating services contract that would provide 10,000 copies per year at a cost of $0.09 per copy. As an alternative to the duplicating services contract, you found a Xerox copying machine that is durable enough to make 10,000 copies per year for a cost of $.02 per copy. The copier costs $2,029.73 with an annual maintenance cost of $200. The expected life of the copier is 6 years. Depreciation for the copier would be straight-line over 6 years. At the end of the 6th year, the copier would be worthless. Your tax rate and cost of capital are 21% and 10%, respectively.
What is the annual cash flow for the Pinko's contract?
What is the annual cash flow for operating the Xerox copier?
What is the NPV of the Xerox Copier?
What is the equivalent annual cost of the Xerox copier?
Which copying alternative should you choose?
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