The modern Age Copier Company is considering purchasing a copier for use by customers. Data for the
Question:
The modern Age Copier Company is considering purchasing a copier for use by customers. Data for the copier under consideration is reflected in the table below. The copier is expected to last 8 years. The tax rate is 30%.
The Company will not accept a project with a return of less than 12% Copier Equipment Cost $64,000
Annual Revenues $80,000
Annual Paper Costs $33,100
Annual Maintenance Costs $20,000
Annual Depreciation $ 8,000
All of the items in the table above are taxable or tax deductible except for the initial cost of the copier Equipment. Although the initial cost is not tax deductible, the initial cost will be subject to depreciation. Assume straight line depreciation with no residual value.
1. Should Modern Age Copier undertake this project? Explain and support with analysis.
2. Compute the Payback period (Round to one decimal place) Show analysis.
Financial Management Principles and Applications
ISBN: 978-0133423822
12th edition
Authors: Sheridan Titman, Arthur Keown, John Martin