Question 3 [36]

Rapid Print CC is a company specialising in 3D printing for commerce and industry. The management committee is considering adding an additional 3D printer to its production facilities and is considering purchasing one of two suitable 3D printers available for their purposes. Both printers, LaserX and 3Dpro, are under consideration. The printing manager and the financial manager can expect a minimum return of 10% per annum from either printer. The acquisition price for LaserX is R350 000 and for 3Dpro it is R600 000. They have also prepared the following expected net cash flows for the expected 4-year life span of the two printers:

LaserX 3Dpro

80 000 150 000

100 000 250 000

150 000 275 000

180 000 300 000

Required

Show all calculations.

3.1. Calculate the net present value (NPV) for both printers and the internal rate of return (IRR) for LaserX. The IRR for 3Dpro = 20%. It is recommended that you use 22% as an alternative cost of capital for LaserX. (29)

3.2. Recommend to Rapid Prints management which printer they should consider purchasing, providing specific reasons for your recommendations.