You are in the copy business and your major competitor recently purchased a color laser copier

Answer is third option the copier should not be purchased since the net present value is negative $1,379.00

Solution:
Required rate of return = 11%
Initial cost = $23,000
Copies per year= 9000
After-tax inflow per copy =$0.65
Number of years = 5

Step 1
Cash inflow per year for 5 years
= Copies per year×inflow per year
= 9,000×0.65
= $5,850

Step 2
Net present value of investment @ 11% or 0.11
= Cost-Present value of inflow
= Cost - {inflow×Annuity(r,n)}
= Cost - {inflow×((1-(1+r)^-n)/r)}
= $23,000-{$5,850×((1-(1+0.11)^-5)/0.11)}
= $23,000-($5,850×3.70)
= $23,000-$21,621
= -$1,379

NPV is $1,379 negative therefore the project should be rejected. Hence third option is correct.

Step 3
Reason why other options and not correct
First option is not correct because even if internal rate of return is less by 1% of required rate of return of 11% i.e 10% then also net present value comes negative
Solution
Net present value of investment @ 10% or 0.10
= Cost-Present value of inflow
= Cost - {inflow×Annuity(r,n)}
= Cost - {inflow×((1-(1+r)^-n)/r)}
= $23,000-{$5,850×((1-(1+0.10)^-5)/0.11)}
= $23,000-($5,850×3.79)
= $23,000-$22,176
= -$824
Therefore first option is not correct

Step 4
Second option is not correct because

To calculate payback period
Take year with the last negative outflow. So, in this case, it will be year 3
Now divide the total cumulative cash flow in the year in which the cash flows became positive by the total flow of the consecutive year.
So that is: 5450/5850= 0.93
Payback Period =3+0.93
The payback period is 3.93years.

Therefore Payback period is 3.93years and not 3.1years and hence option second is not correct

Step 5
Option four is not correct because we already calculated the net present value and it is negative $1,379 and not $3,500

From Step 2 3 4 and 5 we can say that option 3 is correct and other option cannot be corrected.