Nashua is looking into the option of expanding its dyeing business. Business is booming, and Nashua is considering buying a new printer. Two printers are available on the market: printer X costs R60,000, requires R 6,000 per year to operate, and has a useful life of two years; printer Y costs R70,000, requires R8,000 per year to operate, and will need to be replaced every three years. Nashua’s cost of capital is 10 per cent.
Required:
1. What are the present values of the total costs of the two printers over their useful life?
2. Why are the two present values not comparable?
3. What is the annual-equivalent cost for each of the printers?
4. Which printer should Nashua purchase?