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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883

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Survey of Accounting (Accounting I)

8th Edition
Carl Warren
ISBN: 9781305961883
Textbook Problem

Capital investment

In one group, find a local business, such as a copy shop, that charges for printing, faxing,copying, and scanning documents. In the other group, determine the price of a mid-rangeprinter/copier/scanner/fax machine. Combine this information from the two groups andperform a capital budgeting analysis. Assume that one student will use the machine for1,000 documents per semester for the next three years. Also assume that the minimum rate of return is 10%. In performing your analysis, use the present value factor for 5% compounded for six semiannual periods of 5.08.

Does your analysis support the student purchasing theprinter/copier/scanner/faxmachine?

To determine

Concept introduction:

Capital Investment:

The investment made for expanding business or in any project or purchasing capital assets for the business.

The analysis of capital investment for the student purchasing the printer machine.

Explanation

The mid-range printer/copier/scanner/fax machine costs $100,000 and cost of printing on document is $20. So, the semi-annual inflow of cash is as follows:

  Cash Inflow=Rate per document×No. of documents per semester=$20×1000 documents=$20,000

Now, the NPV is computed as follows:

  NPV

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