Brand New vs Second Hand High Speed Digital Printers - Essay Example

Moreover, stiff competition from the new copy shops is likely to cost this company a 10 percent reduction in sales, so a 3 percent average reduction in revenue should be expected. This is illustrated below:

 If another copy shop opens up, 10% reduction with a 30% probability, therefore, a 3 %                               average reduction on revenue should be built-in;

 Current revenue without a high-speed digital printer = £210,000 – 3%

Projected revenue with a high-speed digital printer = £245,000 – 3%

Difference in a revenue = £35,000 per annum projected – 3% = £33, 950

            The company manager is planning to acquire a Xerox DocuPrint 135MX high-speed digital printer either by purchasing a brand new or a second-hand one. The expenses that are incurred in buying a new or second-hand printer are as follows;

Cost of digital Printer = £40,000 + 7.4 interest (if the money is borrowed).

Cost of 2nd hand digital printer = £30,000 + 20% of £15,000 (£3,000) = £33,000 + 7.4% interest

          By comparing the prices above, it is evident that buying a second-hand high-speed printer is more cost-effective/cheaper than buying a new high-speed printer. However, this printer is four years old, and it is estimated that it will cost the company £15,000 of expenses for repairs and lost business. The expenses incurred in maintaining the second-hand printer are large enough to reduce revenue significantly. It is, therefore, not recommendable to obtain a high-speed digital printer by buying a second-hand Xerox DocuPrint 135MX high-speed digital printer.

          Although a new printer will cost higher than a second-hand printer, it will last longer without involving repair and maintenance costs, while in the warranty period, and it is also a fixed overhead. The only disadvantage it has is that it will potentially generate £33,950 in revenue. This revenue, however, is the actual profit margin, which is usually accepted at approximately 20 percent profit margin, and this means that it will take the company owner at least seven years to recover his investment.

Through leasing, repair, and maintenance costs are incurred by the leasing company, and this will be additional overhead to be considered by the manager if he wants to buy a new printer.