Capital Investment Decision for Campus Print Shop
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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.
As a consultant to Campus, compute:
The payback period.
The unadjusted rate of return.
The net present value.
The internal rate of return.
On the basis of these computations and any qualitative considerations, would you recommend that Campus purchase the new copier?
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Solution Summary
This tutorial provides calculations and analysis in an attached Excel file and brief discussion on whether or not the project should be accepted based on NPV, IRR and payback period (100 words).
Solution Preview
For the calculations, please refer to the attached Excel file.
Although the unadjusted rate of return computed on the basis of average investment is 15%, ...
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