The modern Age Copier Company is considering purchasing a copier for use by customers. Data for...

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Accounting

The modern Age Copier Company is considering purchasing a copierfor use by customers. Data for the copier under consideration isreflected in the table below. The copier is expected to last 8years. The tax rate is 30%. The Company will not accept a projectwith a return of less than 12% Copier Equipment Cost $64,000 AnnualRevenues $80,000 Annual Paper Costs $33,100 Annual MaintenanceCosts $20,000 Annual Depreciation $ 8,000 All of the items in thetable above are taxable or tax deductible except for the initialcost of the copier Equipment. Although the initial cost is not taxdeductible, the initial cost will be subject to depreciation.Assume straight line depreciation with no residual value. 1. ShouldModern Age Copier undertake this project? Explain and support withanalysis. 2. Compute the Payback period (Round to one decimalplace) Show analysis.

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3.8 Ratings (757 Votes)

Question 1 Since nothing had been mentioned in the question about the method to be used to analyse the projects profitability the NPV method has been used since it is the best method for this purpose The NPV method measures the overall profitability of the project by finding out the difference between the sum of discounted cash flows of the project from the initial cost incurred for the project If this difference gives a positive figure the project is profitable If it is a negative figure the project See Answer

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