The basis of an incremental rate of return analysis

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Xerox’s iGenX high-speed commercial printers cost $1.5 billion to develop. The machines cost $500,000 to $750,000 depending on what options the client selects. Spectrum Imaging Systems is considering the purchase of a new printer based on recent contracts it received for printing weekly magazine and mail-out advertising materials. The operating costs and revenues generated are related to a large extent to the speed and other capabilities of the copier. Spectrum is considering the four machines shown below. The company uses a 3-year planning period and a MARR of 15% per year. Determine which copier the company should acquire on the basis of an incremental rate of return analysis. Show BOTH MANUAL AND SPREADSHEET SOLUTIONS.

Copier,                  Initial Operating Cost, Annual                                    Salvage

Name                  Investment $                  $ per Year                   Revenue                                    Value, $                                   

iGen-1                  –500,000                   –350,000                   450,000                                     70,000

iGen-2                  –600,000                   –300,000 460,000                                     85,000

iGen-3                  –650,000                  –275,000                   480,000                                     95,000

iGen-4                   –750,000                   –200,000 510,000                                     120,000

Reference no: EM131294450

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