Suppose Simon Fraser University is considering replacing some Xerox copiers with faster copiers purchased from Kodak. The administration is very concerned about the rising costs of operations during the last decade. 

In order to convert to Kodak, two operators would have to be retrained. Required training and partial remodelling of the premises would cost $2,000. 

Simon Fraser’s three Xerox machines were purchased for $10,000 each, five years ago. Their expected life was 10 years. Their resale value is now $1,000 each; it will be zero in five more years. The total cost of the new Kodak equipment will be $49,000; it will have zero disposal value in five years. 

The three Xerox operators are paid $8 an hour each. They usually work a 40-hour week. Machine breakdowns occur monthly on each machine, resulting in repair costs of $50 per month and overtime of four hours, at time-and-one-half, per machine per month, to complete the normal monthly workload. Toner, supplies, and so on cost $100 a month for each Xerox copier. 

The Kodak system will require only two regular operators, on a regular workweek of 40 hours each, to do the same work. Rates are $10 an hour, and no overtime is expected. Toner, supplies, and so on will cost $3,300 annually. Maintenance and repairs are fully serviced by Kodak for $1,050 annually.

1. Using discounted-cash-flow techniques, compute the present value of all relevant cash flows, under both alternatives, for the five-year period discounted at 12 percent. As a not-for-profit organization, Simon Fraser University does not pay income taxes. 

2. Should Simon Fraser keep the Xerox copiers or replace them if the decision is based solely on the given data? 

3. What other considerations might affect the decision?