Compute the payback period as a consultant to campus


Assignment:

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

2. On the basis of these computations and any qualitative considerations, would you recommend that Campus purchase the new copier?

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Finance Basics: Compute the payback period as a consultant to campus
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