Question

Randall UPS is a supplier of a variety of services for small businesses. Commercial printer, scanning, and copier equipment is being considered to replace a five-year-old machine. After the initial screening of a variety of systems, two integrated systems remain as potential replacements - a new model from Konica Minolta and an updated and enhanced reconstructed model from Ricoh. The relevant information on the two machines are as follows:

	Konica Minolta	Ricoh
Installed Price	$24,500	$25,500
Estimated costs	$4,300 plus $0.015/copy	$7,050
Estimated salvage value	$10,500	$12,500
Estimated useful life	5 years	5 years

Randall expects to charge customers $0.06 per copy and sell 250,000 copies annually; however, they are uncertain about their service volume estimate. The $0.06 per copy they expect to charge customers and the maintenance & usage fees are not expected to change over the next five years. Randall requires a minimum pre-tax rate of return of 15% on its equipment investments.

REQUIREMENTS

1. Using the NPV function in Excel determine the Net Present Value (NPV) for the Konica Minolta system for estimated volumes starting from 200,000 copies/year to 300,000 copies/year, in increments of 5,000 copies.
2. Using the NPV function in Excel determine the (NPV) for the Ricoh system for estimated volumes starting from 200,000 copies/year to 300,000 copies/year, in increments of 5,000 copies.
3. From your answers to the above, determine which copier you would recommend to Speedy at an annual volume of 2100,000, 240,000, & 280,000 copies
4. Explain why the decision is different at different volumes.

Answer 1

It's better to select Ricoh at all the levels as per above calculations.