1. Sony Corporation is considering the purchase of a new phone system for a sales office in Boise, Idaho. The Lucent Technologies system costs $54,000, has annual operating expenses of $4,000 and an expected life of 9 years. The Toshiba system has a cost of $48,000, annual operating expenses of $4,000 and an expected life of 7 years. Ignoring depreciation and taxes and assuming a cost of capital of 9 percent for such an investment, which system should Sony purchase? You are free to use either replacement chain or EAA/EAC analysis.
2. A small real estate office needs a new copier. They have their choice between leasing a new copier for $2,000 per year with all maintenance included or they can purchase their own copier for $4, 200 and would incur $1, 200 per year in operating costs. Paper and cartridge costs for the copier would be identical in either case. The lease would be for a total of 6 years and the copier, if bought, would have a useful life of 6 years and no expected salvage value at the end of that time. Determine if owning the machine would be cheaper on a per-year basis than leasing the machine. Then firm's tax rate is 34% and the proper required rate of return for the project would be 7%.
3. You have become very successful and are considering the purchase of a plane for your firm. The Piper model has an initial cost of $375,000, annual operating costs of $24,000 and a salvage value of $150,000. Its estimated holding period is 7 years. The Cessna model has an initial cost of $325,000, but annual operating costs of $29, 500 and an estimated salvage value of $100,000. Its estimated holding period is 8 years. Your cost of capital is fifteen percent. Ignoring depreciation and taxes, which model would be the best choice assuming they both would perform the required tasks?