Question

2. Xerox's iGenX high-speed commercial printers. The machines cost $500,000 to $750,000 depending on what options the client selects. The operating costs and revenues generated are related to a large extent to the speed and other capabilities of the copier. Spectrum CO. is considering the four machines shown below a) b) c) Which copier should be chosen based on PP with no return? which copier should be chosen based on PP with MARR 15% per year? which copier should be chosen based on Pw with MARR 15% per year? Operating Cost, $per Year 350,000 300,000 275,000 200,000 Annual Revenue, $per Year +450,000 +460,000 +480,000 +510,000 Copier Initial Investment, Gen-1 iGen-2 Gen-3 Gen-4 500,000 -600,000 -650,000 750,000

Answer 1

Revenue alternatives; calculate overall ROR first and compare to MARR =15%. Then rank
remaining alternatives according to increasing initial investment (including DN) and
compare incrementally. ROR values determined by RATE function.
i iGen-1* = -12.6% (eliminate)
i iGen-2* = -2.7% (eliminate)
i iGen-3* = 4.3% (eliminate)
i iGen-4* = 17.8% (retain)
iGen-4 vs DN: 0 = -750,000 + 310,000(P/A,Δi*,3) + 120,000(P/F,Δi*,3)
Δi* =17.8%;

select iGen-4