Case Scenario:
Ambuja University must purchase word processors that cost INR 8,000 each and have annual, year-end maintenance costs of INR 2,000 per machine. The EVF word processors will be replaced at the end of year 4 and have no value at that time.
Alternatively, Ambuja can buy 11 AEH word processors to accomplish the same work. The AEH word processors will be replaced after three years.They each costs INR 5,000 and have annual, year-end maintenance costs of 2,500 per machine.
Each AEH word processor will have a resale value of INR 500 at the end of three years.
The university's opportunity cost of funds for this type of investment is 14 percent. Because the university is a nonprofit institution, it does not pay taxes.
It is anticipated that whichever manufacturer is chosen now will be the supplier of future machines.
Would you recommend purchasing 10 EVF word processors or 11 AEH machines?