The Lansing Community College registrar\'s office is considering replacing some
ID: 2410678 • Letter: T
Question
The Lansing Community College registrar's office is considering replacing some Canon copiers with faster copiers purchased from Kodak. The office's 4 Canon machines are expected to last 5 more years. They can each be sold immediate y orse D their resale va e in 5 ears wil be zero. The Canon machines require . operators; they are paid $8.40 an hour each and work 38 hours a week and 51 weeks a year. The machines break down periodically, resulting in annual repair costs of $960 for each machine. Supplies cost $1,200 a year for each machine worn gat nours a eek and 51 weeks e total cost of the new Kodak equipment will be $111,000. The equipment will have a life of 5 years and a total disposal value at that time of $1,900. The Kodak system will require only 2 regular operators. Kodak has offered the college a maintenance contract that covers all machine breakdowns; the cost of the contract is $1,020 per year. Total cost for all supplies will be $3,480 per year Required Assuming a discount rate of 14%, compute the difference between the net present value if the registrar's office keeps the Canon copiers and the net present value if it buys the Kodak copiers. [Note: If your results favor keeping the Canon copiers, enter your net present value difference as a positive number; if your results favor buying the Kodak copiers, enter your net present value difference as a negative number.]Explanation / Answer
Cost of Canon Printers and NPV
Operaor Expenses
(4*8.40*38*51)
$ 65,116.80
Breakdown Cost
(960*4)
$ 3,840.00
Supplies Cost
(1200*4)
$ 4,800.00
Cost per Year
$ 73,756.80
Annuity factor for 5 Years
3.433
Discounted cost for 5 Years/ Present value
$ 253,207.09
Cost of Kodak Printers and NPV
Operaor Expenses
(2*8.40*38*51)
$ 32,558.40
Breakdown Cost
$ 1,020.00
Supplies Cost
$ 3,480.00
Cost per Year
$ 37,058.40
Annuity factor for 5 Years
3.433
Discounted cost for 5 Years
(A)
$ 127,221.49
Disposal value of new machine at year 5
(B) =(1900*0.5194)
986.86
Add- Cost to pe incurred at beginning
(C )
$ 111,000.00
$ 237,234.63
Less: Resale value of Old Machine
(D)
$ 3,600.00
Net Present value
(E=A+C-B-D)
$ 233,634.63
Answer
Present Value for Kodak Printers
$ 233,634.63
Present Value for Canon Printers
$ 253,207.09
Net Present Value
$ (19,572.47)
It is advisable to but Kodak Printers
Notes :
1) Resale value will be deducted from cost of new machine.
2) Resale value and cost of Machine will not be discounted as these transactions will occur at the beginning.
3) Annuity Factor is Calculated as below
Year
Discounting rate @ 14%
1
0.877
2
0.769
3
0.675
4
0.592
5
0.519
Total
3.433
Cost of Canon Printers and NPV
Operaor Expenses
(4*8.40*38*51)
$ 65,116.80
Breakdown Cost
(960*4)
$ 3,840.00
Supplies Cost
(1200*4)
$ 4,800.00
Cost per Year
$ 73,756.80
Annuity factor for 5 Years
3.433
Discounted cost for 5 Years/ Present value
$ 253,207.09
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