Use the following information to answer Questions (14)-(16) Harrison Architects

Question

Use the following information to answer Questions (14)-(16) Harrison Architects is considering replacing a special laser printer the company uses to make construction blueprints. Selected information about the two alternatives is given below: New Printer Old Printer Original Cost Accumulated Depreciation Current Resale Value Annual Operating Cost Remaining Useful Life $12,300$19,600 13,000 4,500 8,600 5 years N/A N/A 6,400 5 years (14) Harrison will: (a) opt to use the old machine because selling it would entail taking a $2,100 loss (b) opt to use the old machine because the net advantage over five years of doing so is $1,300 (c) opt to buy the new machine because the annual operating cost savings are $2.200 (d) opt to buy the new machine because the net advantage over five years of buying the new machine is $3,200 (15) If Harrison opts to replace its laser printer, the payback period on the new printer is: (a) 1.26 years (b) 1.41 years (c) 3.55 years (d) 5.00 years (e) 5.59 years (16) Harrison's accountant just completed a finance seminar at Santa Monica College. She wants to apply a more rigorous analytical technique to evaluating the above proposal. Specifically, she intends to calculate the proposal's net present value. She uses a rate of 5% to discount the proposal's cash flows. On the basis of the accountant's analysis, Harrison will: a) opt to buy the new machine because the net present value of replacing the old machine is positive opt to use the old machine because the net present value of buying the new machine is negative b) c) ignore the net present value analysis because the selling the old machine entails taking a $2,100 loss

Explanation / Answer

14. d) opt to buy new machine because net advantage over 5 years is 3200

15.c)3.55 years

16.b) opt to use the old machine because net present value of buying new machine is negative

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