Konica Minolta plans to sell a copier that prints documents

Konica Minolta plans to sell a copier that prints documents on both sides simultaneously, cutting in half the time it takes to complete big commercials jobs. The costs associated with producing chemicals treated vinyl rollers and fibre-impregnated rubber rollers are estimated. Determine which of the two types should be selected by calculating the rate of return on the incremental investment. Assume the company\'s MARR is 20% per year. First cost, $ Annual cost, $per year Salvage value, $ Life, years Treated 50,000 100,000 5,000 3 Impregnated 95,000 85,000 1,000 6

Solution

Since the incremental IRR is -6% which is less than MARR of 20 percent, the Treated needs to be selected and Impregnated needs to be dropped

Year

Treated

Impregnated

Incremental IRR, (Imprgnated-treated)

0

-50000

-95000

-45000

1

-100000

-85000

15000

2

-100000

-85000

15000

3

-95000

-85000

10000

-85000

-85000

-85000

-85000

-74000

-74000

IRR

-6%

Year	Treated	Impregnated	Incremental IRR, (Imprgnated-treated)
0	-50000	-95000	-45000
1	-100000	-85000	15000
2	-100000	-85000	15000
3	-95000	-85000	10000
		-85000	-85000
		-85000	-85000
		-74000	-74000
		IRR	-6%