Printer Investment Analysis

This assignment presents a comparative analysis of two investment proposals: Printer A and Printer B. It utilizes key financial metrics such as Net Present Value (NPV), Internal Rate of Return (IRR), and Payback Period to evaluate the profitability and risk associated with each investment. The analysis concludes by recommending the optimal investment choice based on these financial indicators.

Running Head: Finance
Managerial Finance

Finance 2
Table of Contents
Introduction:..........................................................................................................................................3
Part A....................................................................................................................................................4
Initial Investment:..............................................................................................................................4
Operating Cash Inflows:....................................................................................................................5
Terminal Cash Flows:........................................................................................................................6
Part B.....................................................................................................................................................7
Relevant Cash Flow Stream:..............................................................................................................7
Part C:...................................................................................................................................................9
Payback Period:.................................................................................................................................9
Net present Value:...........................................................................................................................10
Internal rate of Return:....................................................................................................................11
Part D:.................................................................................................................................................12
Graphical Presentation.....................................................................................................................12
The IRR graph:............................................................................................................................12
The NPV graph:...........................................................................................................................13
Part E:..................................................................................................................................................13
Ranking of the projects (Unlimited Funds)......................................................................................13
Recommendation (Capital Rationing):............................................................................................14
Part F...................................................................................................................................................14
Impact on Recommendation:...........................................................................................................14
References:..........................................................................................................................................15

Finance 3
Introduction:
In the present case, CQU Printers is a company which is looking to change the printer to
enhance its operations and to make the operations efficient and effective. The present case
elaborates that some changes have taken place in the market and to come in line with those
changes company needs to replace its old printer with a new one. This case is all about the
replacing decision of the company (Ryan & Ryan, 2002). Company have two choices they
need to evaluate both the printers their revenue generating capacity in comparison with each
other and with the old computer. The decision will be based on the NPV, payback period and
IRR as the printer who have higher NPV, payback and IRR will be selected for the
replacement (McKinney, 2015). The company also need to analysis as to replace the printer
now that is at the end of third year or at the end of the useful life of the printer that is at the
end of fifth year.
This case elaborates that the company is required to produce 50000 units annually.
Old printer is to be replaced with the new printer to meet the annual demand of the company.
The sale value of old printer at the end of 3rd year is $420000 and the sale value at the end of
fifth year is 0. The cost of new printer A is $870000 and the cost of new printer B is $660000.
The sale value of printer A after its useful life that is 5 years is $400000 and the sale value of
printer B after 5 years is $330000. The book value after 5 years of printer A is $43500 and of
printer B is $33000. The cost of capital of the company is 14% and tax rate is 40%. Here we
present a table about the profit of old printer, printer A and printer B:
Profit before Depreciation and Taxes for CQU Printers
Year Old printer Printer A Printer B
1 $ 1,20,000 $ 2,50,000 $ 2,10,000
2 $ 1,20,000 $ 2,70,000 $ 2,10,000
3 $ 1,20,000 $ 3,00,000 $ 2,10,000
4 $ 1,20,000 $ 3,30,000 $ 2,10,000
5 $ 1,20,000 $ 3,70,000 $ 2,10,000

Finance 4
Part A
The company need to evaluate the installation cost, terminal cash flows and total cash flows
of the project before investing in the project. With the help of this evaluation the company
will get to know as if which project is best and which project is worth full for the investment
of the company (Renz, 2016). The company will also get to know about the cash flows
generated from both the projects. Here we present the calculations regarding Initial
Investment, Cash flow and terminal cash flows for five years of both the proposals:
Initial Investment:
Initial Investment is the amount that comprises of the cost of acquisition and working capital
requirements and the installation cost of the asset (Petty, Titman, Keown, Martin, Martin, &
Burrow, 2015). In the resent case there are two printers and the initial investment for both the
printers is presented below:
Calculation of initial investment
Printer A Printer B
Cost of Acquisition $ 8,70,000 $ 6,60,000
Less: Sale value of old printer $ 4,20,000 $ 4,20,000
Initial Investment $ 4,50,000 $ 2,40,000
This table shows that the initial investment required for printer A is $450000 and for printer
B is $240000. The initial investment of printer B is lower than printer A.
Here we do present the profit earned by the company if the old printer is sold as of now
means at the end of third year.
Statement of Profit (Selling the Old Printer now)
Installed Cost $ 4,00,000
Less: Depreciation for three years $ 1,50,000
Value of printer at the end of 3rd year $ 2,50,000
Selling price $ 4,20,000
Profit from selling the printer $ 1,70,000

Finance 5
Operating Cash Inflows:
The operating cash inflows represent the amount which the company will receive after
investing in a particular project through its operating activities (Brigham & Ehrhardt, 2013).
Here we present the operating cash flows of both the investment proposals.
Statement of differential cash flows (Printer A)
Particulars 1 2 3 4 5
Incremental
Depreciation
$
1,15,300
$
1,15,300
$
1,15,300
$
1,15,300
$
1,15,300
Cash Flows from
Printer A
$
2,50,000
$
2,70,000
$
3,00,000
$
3,30,000
$
3,70,000
Cash Flows from
Old Printer
$
1,20,000
$
1,20,000
$
1,20,000
$
1,20,000
$
1,20,000
Incremental Cash
Flows
$
1,30,000
$
1,50,000
$
1,80,000
$
2,10,000
$
2,50,000
Incremental
EBIT
$
14,700
$
34,700
$
64,700
$
94,700
$
1,34,700
Less: Tax @ 30%
$
4,410
$
10,410
$
19,410
$
28,410
$
40,410
Incremental EAT
$
10,290
$
24,290
$
45,290
$
66,290
$
94,290
Incremental
Cash Inflows
$
1,25,590
$
1,39,590
$
1,60,590
$
1,81,590
$
2,09,590
Working capital
Changes $ -90,400
Total
Operational cash
Flows
$
7,26,550
The above table shows the operating cash inflows for the company for printer A $ 726550.
Statement of Differential Cash Flows (Printer B)
Particulars 0 1 2 3 4 5
Incremental
Depreciation
$
75,400
$
75,400
$
75,400
$
75,400
$
75,400

Finance 6
Cash Flows
from Printer A
$
2,10,000
$
2,10,000
$
2,10,000
$
2,10,000
$
2,10,000
Cash Flows
from Old Printer
$
1,20,000
$
1,20,000
$
1,20,000
$
1,20,000
$
1,20,000
Incremental
Cash Flows
$
90,000
$
90,000
$
90,000
$
90,000
$
90,000
Incremental
EBIT
$
14,600
$
14,600
$
14,600
$
14,600
$
14,600
Less: Tax @
30%
$
4,380
$
4,380
$
4,380
$
4,380
$
4,380
Incremental
EAT
$
10,220
$
10,220
$
10,220
$
10,220
$
10,220
Incremental
Cash Inflows
$
85,620
$
85,620
$
85,620
$
85,620
$
85,620
Total
Operational
cash Flows $ 4,28,100
This table depicts the cash inflows of company if they will invest in printer B and the total
cash inflows are $428100.
Working Notes:
Calculation of differential Depreciation
Year 1 to 5 Printer A Printer B
Depreciation $ 1,65,300 $ 1,25,400
Depreciation on Old Machine $ 50,000 $ 50,000
Differential Depreciation $ 1,15,300 $ 75,400
Terminal Cash Flows:
Terminal Cash Flows are the cash flows which the company will get after terminating the
project that is after the end of the useful life of the printers if we talk about these companies’
terminal cash flows (Levi & Welch, 2014). The terminal cash flows of both the proposals are
depicted below:

Finance 7
Calculation of Terminal Cash Flows
Printer A Printer B
Book Value $ 43,500 $ 33,000
Sale Value $ 4,00,000 $ 3,30,000
Capital Gain $ 3,56,500 $ 2,97,000
The above table shows the terminal cash flows of printer A and printer B. The terminal cash
flow of printer A is $356500 and the terminal cash flow of project B is $297000
Part B
Relevant Cash Flow Stream:
Cash Flow Stream is the equal to the total value of the cash flows at present value. It helps in
the evaluation of the present value of the future cash flows to evaluate the best project. The
calculations are being present in the below table regarding relevant cash flow stream:
Printer A
Cash Flows
Stream 0 1 2 3 4 5
initial Investment
$ -
4,50,000
Incremental
Depreciation
$
1,15,300
$
1,15,300
$
1,15,300
$
1,15,300
$
1,15,300
Cash Flows from
Printer A
$
2,50,000
$
2,70,000
$
3,00,000
$
3,30,000
$
3,70,000
Cash Flows from
Old Printer
$
1,20,000
$
1,20,000
$
1,20,000
$
1,20,000
$
1,20,000
Incremental Cash
Flows
$
1,30,000
$
1,50,000
$
1,80,000
$
2,10,000
$
2,50,000
Incremental EBIT
$
14,700
$
34,700
$
64,700
$
94,700
$
1,34,700
Less: Tax @ 30%
$
4,410
$
10,410
$
19,410
$
28,410
$
40,410
Incremental EAT $ $ $ $ $

Finance 8
10,290 24,290 45,290 66,290 94,290
Incremental Cash
Inflows
$ -
4,50,000
$
1,25,590
$
1,39,590
$
1,60,590
$
1,81,590
$
2,09,590
Working Capital
$ -
90,400
Cash Flows
$ -
5,40,400
$
1,25,590
$
1,39,590
$
1,60,590
$
1,81,590
$
2,09,590
PVF @ 14% 1.000 0.877 0.769 0.675 0.592 0.519
PV of Cash Flows
$ -
5,40,400
$
1,10,167
$
1,07,410
$
1,08,394
$
1,07,516
$
1,08,854
Terminal cash
Flows
$
3,56,500
PV of Terminal
Cash Flows
$
1,85,155
PV of Cash Flows $ 1,87,096
This table shows the cash flow stream of printer A that is $187096.
Printer B
Particulars 0 1 2 3 4 5
Incremental
Depreciation
$
75,400
$
75,400
$
75,400
$
75,400
$
75,400
Cash Flows from
Printer A
$
2,10,000
$
2,10,000
$
2,10,000
$
2,10,000
$
2,10,000
Cash Flows from
Old Printer
$
1,20,000
$
1,20,000
$
1,20,000
$
1,20,000
$
1,20,000
Incremental Cash
Flows
$
90,000
$
90,000
$
90,000
$
90,000
$
90,000
Incremental EBIT
$
14,600
$
14,600
$
14,600
$
14,600
$
14,600
Less: Tax @ 30%
$
4,380
$
4,380
$
4,380
$
4,380
$
4,380
Incremental EAT $ $ $ $ $

Finance 9
10,220 10,220 10,220 10,220 10,220
Incremental Cash
Inflows
$ -
2,40,000
$
85,620
$
85,620
$
85,620
$
85,620
$
85,620
PVF @ 14% 1.000 0.877 0.769 0.675 0.592 0.519
PV of Cash Flows
$ -
2,40,000
$
75,105
$
65,882
$
57,791
$
50,694
$
44,468
Terminal Cash
Flows
$
2,97,000
PV of Terminal
Cash Flows
$
1,54,252
PV of Cash Flows $ 2,08,193
This table shows the present value of cash flow stream of $208193.
Part C:
After the evaluation of the cash flows of the project, there is need to take the analysis of
NPV, IRR and payback period of both the printers. The decision is to be based on the NPV,
IRR and payback period.
Payback Period:
Payback period shows the time taken to recover the initial investment by the company
(Larson & Gray, 2013). Following is the calculations of the payback period of Printer A and
printer B.
Calculation of Payback Period (Printer A)
Yea
r Cash Flow Cumulative Cash Flow
1 $ 1,25,590 $ 1,25,590
2 $ 1,39,590 $ 2,65,180
3 $ 1,60,590 $ 4,25,770
4 $ 1,81,590 $ 6,07,360
5 $ 2,09,590 $ 8,16,950
Payback Period 3.63

Finance 10
The payback period for investing in printer A is 3.63 years.
Calculation of Payback period (Printer B)
Yea
r Cash Flow Cumulative Cash Flow
1 $ 85,620 $ 85,620
2 $ 85,620 $ 1,71,240
3 $ 85,620 $ 2,56,860
4 $ 85,620 $ 3,42,480
5 $ 85,620 $ 4,28,100
Payback Period 2.80
The payback period for investing in printer B is 2.80years.
Net present Value:
Net Present Value represents the total profit which the company will realise from investing in
the particular proposal (Grant, 2016). The table below shows the NPV of both the proposals:
Net present value (Printer A)
Yea
r Cash Flows
PVF @
14% PV
0 $ -5,40,400 1.000 $ -5,40,400
1 $ 1,25,590 0.877 $ 1,10,167
2 $ 1,39,590 0.769 $ 1,07,410
3 $ 1,60,590 0.675 $ 1,08,394
4 $ 1,81,590 0.592 $ 1,07,516
5 $ 5,66,090 0.519 $ 2,94,009
NPV $ 1,87,096
The NPV of investing in printer A is $187096. That is the company have a chance to accept
the proposal as its NPV is positive.
Net present value (Printer B)
Yea
r Cash Flows
PVF @
14% PV
0 $ -2,40,000 1.000 $ -2,40,000
1 $ 85,620 0.877 $ 75,105

Finance 11
2 $ 85,620 0.769 $ 65,882
3 $ 85,620 0.675 $ 57,791
4 $ 85,620 0.592 $ 50,694
5 $ 3,82,620 0.519 $ 1,98,721
NPV $ 2,08,193
The NPV of investing in printer B is $ 208193.
The NPV of investing in printer B is higher than the NPV of investing in printer A. That
means the company will be more profitable if the proposal only consider the NPV of the
project (Kerzner, 2013).
Internal rate of Return:
The internal rate of return is calculated to know that the investment in the new proposal have
a return higher or lower than its cost of capital (Brooks, 2015). The table below presents the
IRR of both the proposals:
Calculation of IRR (Printer A)
Year Cash Flows
0 $ -5,40,400
1 $ 1,25,590
2 $ 1,39,590
3 $ 1,60,590
4 $ 1,81,590
5 $ 5,66,090
IRR 24.40%
The IRR of printer A is 24.40% it is more than the companies cost of capital.
Calculation of IRR (Printer
B)
Year Cash Flows
0 $ -2,40,000
1 $ 85,620
2 $ 85,620

Finance 12
3 $ 85,620
4 $ 85,620
5 $ 3,82,620
IRR 37.93%
The IRR of printer B is 37.93% which is more than the Cost of capital of the company.
If the decision is based only on IRR then the company will accept proposal B.
Part D:
Graphical Presentation
Here we do present the NPV and IRR of both the projects with the help of graph.
The IRR graph:
1
0.00%
5.00%
10.00%
15.00%
20.00%
25.00%
30.00%
35.00%
40.00%
IRR
IRR A
IRR B
We can see that the IRR of Printer B is higher than Printer A.

Finance 13
The NPV graph:
1
$175,000
$180,000
$185,000
$190,000
$195,000
$200,000
$205,000
$210,000
NPV
NPV A
NPV B
(Akkizidis & Stagars, 2015)
The graph above shows that the NPV of printer B is higher than printer A.
Part E:
Ranking of the projects (Unlimited Funds)
We did analysed both the projects of the company and after a detailed analysis we found that
NPV of Printer B is higher than Printer A and IRR of Printer B is higher than Printer A. Then
we come to payback period the payback period of Printer B is less than Printer A. The NPV
of printer A is $187096 and NPV of printer B is $208193. This means that investing in
Printer B is much better than investing in Printer A (Vogel, 2014). The payback period of
Printer A is 3.63 years and the payback period of Printer B is 2.80 years. The payback of
printer B is less than Printer A that means investing in Printer B is good for the company. As
we come to IRR the IRR of Printer A is 24.40% and the IRR of Printer B is 37.93% the IRR
of Printer B is more than Printer A. Hence with the above analysis we can conclude that
investing in Printer B is better than investing in Printer A (Barr & McClellan, 2018).

Finance 14
Recommendation (Capital Rationing):
The above analysis is all about investing in new proposal which consist of two choices one is
Printer A and the other is Printer B. We did analysed both the proposals very deeply and we
came to know that investing in Printer B is far better than investing in Printer A as all the
investing decisions are in the favour of our selection that is Printer B. The NPV of Printer B
is high, The IRR of Printer B is more than Printer A and the payback period of Printer B is
less than Printer A (Bodie, Kane & Marcus, 2014). Hence we should invest in printer B, this
will increase the profitability of the company.
Part F
Impact on Recommendation:
This study is all about the risk and return factor of both the investment proposals and the
evaluation is done to investigate the best project for the company (Cole, 2004). On the basis
of our analysis we came to know that the investment in Printer B is much better than
investing in Printer A. When we analysis the cash flows of both the printer then we get that
the cash flows of Printer A is more than Printer B but after that we get the final results that is
NPV, IRR and payback period we got that investing in Printer B is the best option for the
company (Vogel, 2014). The above analysis says that the cash inflows of Printer A are risk as
its NPV, payback and IRR all are lower than Printer B.

Finance 15
References:
Akkizidis, I., & Stagars, M. (2015). Marketplace lending, Financial Analysis, and the Future
of credit: Integration, Profitability, and risk management. John Wiley & Sons.
Barr, M. J., & McClellan, G. S. (2018). Budgets and financial management in higher
education. John Wiley & Sons.
Bodie, Z., Kane, A., & Marcus, A. J. (2014). Investments, 10e. McGraw-Hill Education.
Brigham, E. F., & Ehrhardt, M. C. (2013). Financial management: Theory & practice.
Cengage Learning.
Brooks, R. (2015). Financial management: core concepts. Pearson.
Cole, G. A. (2004). Management theory and practice. Cengage Learning EMEA.
Grant, R. M. (2016). Contemporary strategy analysis: Text and cases edition. John Wiley &
Sons.
Kerzner, H. (2013). Project management: a systems approach to planning, scheduling, and
controlling. John Wiley & Sons.
Larson, E. W., & Gray, C. (2013). Project Management: The Managerial Process with MS
Project. McGraw-Hill.
Levi, Y., & Welch, I. (2014). Long-term capital budgeting. Unpublished working paper,
Anderson Graduate School of Management, UCLA.
McKinney, J. B. (2015). Effective financial management in public and nonprofit agencies.
ABC-CLIO.
Petty, J. W., Titman, S., Keown, A. J., Martin, P., Martin, J. D., & Burrow, M. (2015).
Financial management: Principles and applications. Pearson Higher Education AU.
Renz, D. O. (2016). The Jossey-Bass handbook of nonprofit leadership and management.
John Wiley & Sons.