Office Automation, Inc., must choose between two copiers, the XX40 or the RH45.

Question

Office Automation, Inc., must choose between two copiers, the XX40 or the RH45. The XX40 costs $1,100 and will last for 3 years. The copier will require a real aftertax cost of $124 per year after all relevant expenses. The RH45 costs $3,100 and will last 6 years. The real after tax cost for the RH45 will be $142 per year. All cash flows occur at the end of the year. The inflation rate is expected to be 4 percent per year, and the nominal discount rate is 11 percent.

Required:
(a)
Compute the NPV and EAC for both the copiers. (Do not include the dollar signs ($). Negative amounts should be indicated by a minus sign. Round your answers to 2 decimal places. (e.g., 32.16))

Explanation / Answer

XX40

RH45

Particulars Year 0 Year 1 Year 2 Year 3 Year 4 Year 5 Year 6 Cash flow -1100 -124 -124 -124 Discountgin factor 1 0.900901 0.811622 0.731191 0.658731 0.593451 0.534641 Present value -1100 -111.712 -100.641 -90.6677 0 0 0 NPV -1403.020625

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