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 $500; their resale value in 5 years will be zero. The Canon machines require 4 operators; they are paid $7.80 an hour each and work 40 hours a week and 52 weeks a year. The machines break down periodically, resulting in annual repair costs of $1,380 for each machine. The cost of supplies for each machine will be $1,080 a year.

The total cost of the new Kodak equipment will be $116,000. The equipment will have a life of 5 years and a total disposal value at that time of $2,900. 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 $960 per year. The cost of supplies for all the machines combined will be $3,000 a year.

Required
Assuming a discount rate of 14%, 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

NPV is it keeps Canon copier	in $
Annual operator cost ($7.8*4*40*52)	64896
Annual repair cost (1380*4)	5520
Annual cost of supplies (1080*4)	4320
Total annual cost A	74736
PVIFA(14%,5) B	3.433081
NPV A*B	256574.7
rounded to 0 decimal	256575
NPV if it buys canon copier
Purchase price of new copier	116000
Less: salavage value of cannon copier (500*4)	-2000
Net investment cost I	114000
Annual cost
Annual operator cost ($7.8*3*40*52)	48672
Annual repair cost	960
Annual cost of supplies	3000
Total annual cost T	52632
PVIFA(14%,5) B	3.433081
NPV of total annual cost N=T*B	180690
Salvage value	2900
Present value PVIF(14%,5)	0.519369
PV of salvage S	-1506
NPV I+N-S	293183.75
NPV	293184
NPV of keeping Canon	256575
NPV of buying canon copier	293184
NPV difference	36609
Its better to keep canon copier
The answer could vary as the discount value I took is exact and not rounded to five decimal
If any doubt please comment

If taken five decimal
NPV of keeping Canon	$256575
NPV of buying canon copier	293710
NPV difference	37135