Hunter Brothers Inc. needs to buy printers for its offices. It can buy expensive laser printers or much cheaper (but shorter-lived) inkjets. Here are some relevant facts:
A laser printer costs $1,000 and an inkjet costs $250.
A laser printer has an anticipated life of 6 years, but an inkjet has an anticipated life of only 2 years. Printers are assumed to have zero market value at the end of their lives.
The cost per page for a laser printer is $0.03, whereas the cost per page for an inkjet is $0.10. Each printer purchased is anticipated to print 10,000 pages per year.
If Hunter Brothers has a discount rate of 12% and a tax rate of zero, which printers should it buy? Assume that the whole year’s cost of printing falls at year end.