Capital budgeting: Finance: Show they purchase the asset?
Not what you're looking for?
Should We Purchase That New Copier? Campus Print Shop is thinking of purchasing a new, modern copier that automatically collates pages. The machine would cost $22,000 cash. A service contract on the machine, considered a must because of its complexity, would be an additional $200 per month. The machine is expected to last eight years and have a resale value of $4,000. By purchasing the new machine, Campus would save $450 per month in labor costs and $100 per month in materials costs due to increased efficiency.
Other operating costs are expected to remain the same. The old copier would be sold for its scrap value of $1,000. Campus requires a return of 14% on its capital investments.
1. As a consultant to Campus, compute: The payback period
2. On the basis of these computations and any qualitative considerations, would you recommend that Campus purchase the new copier?
Purchase this Solution
Solution Summary
Process for analyzing asset purchases is a classic! Student is given the response and an excel file with the process worked out to use as a template for future assignments.
Solution Preview
1. As a consultant to Campus, compute: The payback period
Compute the cashflows of buying the copier:
Year Outflow Inflow Cashflow Remaining cash
Investment -22,000
0 1,000 1,000 -21,000
1 -2,400 6,600 4,200 -16,800
2 -2,400 6,600 4,200 -12,600
3 -2,400 ...
Purchase this Solution
Free BrainMass Quizzes
Social Media: Pinterest
This quiz introduces basic concepts of Pinterest social media
Understanding Management
This quiz will help you understand the dimensions of employee diversity as well as how to manage a culturally diverse workforce.
Managing the Older Worker
This quiz will let you know some of the basics of dealing with older workers. This is increasingly important for managers and human resource workers as many countries are facing an increase in older people in the workforce
IPOs
This Quiz is compiled of questions that pertain to IPOs (Initial Public Offerings)
Accounting: Statement of Cash flows
This quiz tests your knowledge of the components of the statements of cash flows and the methods used to determine cash flows.