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 immediately for $1,100; their resale value in 5 years will be zero. The Canon machines require 4 operators; they are paid $8.40 an hour each and work 39 hours a week and 50 weeks a year. The machines break down periodically, resulting in annual repair costs of $1,440 for each machine. The cost of supplies for each machine will be $1,200 a year.

The total cost of the new Kodak equipment will be $115,000. The equipment will have a life of 5 years and a total disposal value at that time of $2,100. The Kodak system will require only 3 regular operators. Kodak has offered the college a maintenance contract that covers all machine breakdowns; the cost of the contract is $720 per year. The cost of supplies for all the machines combined will be $3,360 a year.

Required
Assuming a discount rate of 10%, 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.]

Answer 1

Calculation of Present VALUE for Canon
Year	Cost of Purchase/Disposal value	Operator's Cost	Annual Repair Cost	Supplies	Total Cash Outflow	PV Factpr @ 10%	Present Value
0						1	-
1		65,520	5760	1200	72,480	0.909091	65,891
2		65,520	5760	1200	72,480	0.826446	59,901
3		65,520	5760	1200	72,480	0.751315	54,455
4		65,520	5760	1200	72,480	0.683013	49,505
5		65,520	5760	1200	72,480	0.620921	45,004
	Total present VALUE					274,756
Calculation of Present Value for Kodak
Year	Cost of Purchase/Disposal value	Operator's Cost	Annual Repair Cost	Supplies	Total Cash Outflow	PV Factpr @ 10%	Present Value
0	110600				110,600	1	110,600
1		49,140	720	3360	53,220	0.909091	48,382
2		49,140	720	3360	53,220	0.826446	43,983
3		49,140	720	3360	53,220	0.751315	39,985
4		49,140	720	3360	53,220	0.683013	36,350
5	(2,100)	49,140	720	3360	51,120	0.620921	31,741
	Total PRESENT VALUE					311,042