Case 18-1 Should We Purchase That New Copier?
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.
1. As a consultant to Campus, compute:
The payback period.
Price less salvage old copy
Cost of service contract

justed rate of return.
6600/40,200 = 16%
6600 (annual increase in efficiency).
The net present value.

Time Period Years Cash Present Value Flows Factor Present Value of Cash Flows
Percent value of cash inflows: Net revenues
Salvage Value 8 years
Total Value of cash outflows
Present value of cash outflows Today
Servicing Cost 8 years
Total Cash Outflows
Net Present Value


The internal rate of return.
Investment cost/Annual net cash inflows
the basis of these computations and any qualitative considerations, would you recommend that Campus purchase the new copier?