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 $1,300; their resale value in 5 years will be zero. The Canon machines require 4 operators; they are paid $8.50 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 $1,020 for each machine. The cost of supplies for each machine will be $1,440 a year.

The 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 $2,500. 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 $1,140 per year. The cost of supplies for all the machines combined will be $3,360 a year.

Required

Assuming a discount rate of 12%, 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