Office Automation Inc. must choose between two copiers, XX40 and RH45. XX40 costs less than RH45, but its economic life is shorter.The costs and maintenance expenses of these two copiers are given as follows. These cash flows are expressed in real terms:CopierXX40RH45Year 0$ 9001,400Year 1$ 12095Year 2$ 12095Year 3Year 4Year 5$ 12095$ 95$ 95The inflation rate is 5 percent and the nominal discount rate is 14 percent. Assume that revenues are the same regardless of thecopier, and that whichever copier the company chooses, it will buy the model forever.a. Calculate the value of EAC for XX40 and RH45 copier? (Input all amounts as positive values. Do not round intermediatecalculations. Round the final answers to 2 decimal places. Omit $ sign in your response.)CopierXX40EAC$ -955.08 ⭑RH45$-338.82b. Which copier should the company choose? Ignore taxes and depreciation.XX40RH45

EAC is the uniform equivalent annual cost which includes the cost of ownership and cost of…

Answered: Office Automation Inc. must choose…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Skatez n' co. is considering building a new plant. Gustav Jenkins, the company's marketing manager, is a supporter of the new plant. Charles Barles, the company's CFO is not sure they need a new plant. Currently, they purchase their skateboard blanks from china. The following figures were estimated for the new plant: cost of plant $6,000,000 Annual cash inflow $7,000,000 annual cash outflow $6,540,000 Estimated useful life of plant 15 years Salvage value of plant $3,000,000 Discount rate 11% Jenkins belives that this understates the value of the plant, claiming sales will be $400,000 higher than claimed, with insurance and warranty claim savings of $60,000 per year. He also believes the project is safter than above, at an 8% discount rate. What is the net present value of the project based on original projections? What if Jenkins estimated the $60,000 savings correctly, but the discount rate remains at 11%?
Your firm spends $498,000 per year in regular maintenance of its equipment. Due to the economic downturn, the firm considers forgoing these maintenance expenses for the next 3 years. If it does so, it expects it will need to spend $2.1 million in year 4 replacing failed equipment. a. What is the IRR of the decision to forgo maintenance of the equipment? b. Does the IRR rule work for this decision? c. For what costs of capital (COC) is forgoing maintenance a good decision? a. What is the IRR of the decision to forgo maintenance of the equipment? The IRR of the decision is%. (Round to two decimal places.)
Part B: QI Proposal Quantum International (QI) would manufacture, sell and distribute the valves. QI has a long history of success in manufacturing high performance valves. However, Piscataway does not expect them to be as successful in marketing as FPS resulting in lower payments from customers as shown below. In the QI proposal, Piscataway would only have operating cash outflows related to administrative expenses as shown below. Year Cash In-Flow (Payments from Customers) Total Cash Outflow Explain your choice. 1 $3,255 $315 Piscataway would make a payment to QI of QI would receive an annual fee of These payments are not included in the Total Cash Flow above. (i) What required rate of return should Pisctataway use to evaluate the QI proposal? (iii) Should Piscataway choose FPS or QI? 2 $6,610 $580 15% (ii) What would be Piscataway's net operating cash flow if they choose QI? 3 $11,005 $935 $10,000 in Year 0 60% of payments to customers to compensate them for manufacturing and…
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