I cant figure this thing out fully, I feel so clueless. Does anyone have any pointers or tips for me?
Company needs a new copy machine. Rent costs are = 17.5 cents / each.
Number of copies = atleast 200 000. (The company agrees to buy at least that number)
Buying the unit costs 150 000 SEK. The bank wants a 6.5% interest rate and
after 5 years, the unit needs to be fully paid for.
Maintenance and operation is estimated to cost 6 cents / copy.
In both cases, the actual paper costs will be the same for both options.
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What is the total cost after 5 years, which is cheapest?
How many copies / year, before it pays to buy the machine instead of renting?
Which maximum price / copy, can you pay to the leasing company in case you want to have equal cost to lease / purchase if you copy 200,000 copies / year. (Other values are equal)
Option #1.
Cost = (0.175+0.06)cents/copy * 200,000copies/yr * 5yrs = $235,000 = cost of renting for 5 yrs.
Option # 2.
Cost = $150,000 + $150,000*0.065*5 =
150,000 + 48,750 = $198,750 = cost of
buying for 5 yrs.
Buying is cheapest after 5 years.
N = the # of copies /yr.
C = (0.175+0.06)cts/copy * N copies *
5yrs = 198,750,
C = 1.175N = 198,750,
N = 169,149 copies/yr. before it pays to buy.
Max. price per copy = $P.
Cost=$P/copy *200,000copies/yr * 5yrs =
198,750,
1,000,000P = 198,750,
P = $0.198750 = 19.8750 Cents/copy
.
Thank you Henry! I really appreciate your help! :) Great!
To determine the total cost after 5 years and find out which option is cheapest, we'll calculate the costs for both renting and buying the copy machine.
1. Renting the copy machine:
- Rent costs per copy: 17.5 cents
- Number of copies: at least 200,000
- Maintenance and operation cost per copy: 6 cents
To find the total cost of renting, we first need to calculate the annual cost:
Annual rent cost = Rent cost per copy * Number of copies
Annual maintenance and operation cost = Maintenance and operation cost per copy * Number of copies
Total annual cost = Annual rent cost + Annual maintenance and operation cost
Once we have the total annual cost, we can multiply it by 5 to get the total cost after 5 years.
2. Buying the copy machine:
- Buying cost: 150,000 SEK
- Interest rate: 6.5%
- Number of copies: at least 200,000
- Maintenance and operation cost per copy: 6 cents
To find the total cost of buying, we need to calculate the annual interest expense and maintenance cost.
Annual interest expense = Buying cost * Interest rate
Annual maintenance and operation cost = Maintenance and operation cost per copy * Number of copies
Total annual cost = Annual interest expense + Annual maintenance and operation cost
Once we have the total annual cost, we can multiply it by 5 to get the total cost after 5 years.
To determine the point at which it becomes cheaper to buy the machine instead of renting, we need to compare the total costs for different numbers of copies per year.
Start with a low number of copies per year, and increment it until the total cost of buying becomes lower than the total cost of renting.
To calculate the maximum price per copy that you can pay to the leasing company in order to have equal costs as the purchase option, we need to set up an equation:
Total cost of buying = Total cost of renting
Solving this equation for the leasing cost per copy will give us the maximum price per copy you can pay to the leasing company.
Using the above information and calculations, you can find the answers to your questions and make an informed decision about whether to rent or buy the copy machine.