A company is considering whether to buy a regular or color photocopier for the office. The cost of the regular machine is $10,000, its life span is 5 years, and the company has to pay another $1,500 annually in maintenance costs. The color photocopier’s price is $30,000, its life span is also 5 years, and the annual maintenance costs are $4,500. The color photocopier is expected to increase the revenue of the office by $8,500 annually. Assume that the company is profitable and pays 40% corporate tax; the relevant interest rate is 11%.

Which photocopy machine should the firm buy? (Hint: you might want to compare the differential cash flows between these two machines.)

Answer rating: 100% (QA)

To determine which photocopier the company should buy we need to compare the net present value NPV o... View the full answer