Question
In: Finance
There are three mutually exclusive alternatives, as vendors to outsource a project, with the following cash...
There are three mutually exclusive alternatives, as vendors to outsource a project, with the following cash flow and useful life. Which of these three alternatives would you recommend to be selected? The MARR is 10% per year.
|
Vendor 1 |
Vendor 2 |
Vendor 3 |
|
|
First Cost |
$60,000 |
$35,000 |
$25,000 |
|
Annual operating and maintenance cost |
$3,000 every 4 years |
$1,000 per year |
$2,000 in yr 1 and it increases by $200 every year thereafter |
|
Salvage value |
$10,000 |
$4,000 |
$3,000 |
|
Useful life, years |
8 |
2 |
4 |
Solutions
Expert Solution
Answer-
We have to calculate NPV of all the three alternatives and the alternative with the highest NPV should be selected.
Vendor 1
NPV = - $ 60000 - $ 3000 / 1.104 - $ 3000 / 1.108 + $ 10000 / 1.088
NPV = - $ 60000 - $ 3000 / 1.464 - $ 3000 / 2.143 + $ 10000 / 2.143
NPV = - $ 60000 - $ 2049.2 - $ 1399.9 + $ 4666.35
NPV = - $ 58782.75
Vendor 2
NPV = - $ 35000 - $ 1000 / 1.10 - $ 1000 / 1.102 + $ 4000 / 1.12
NPV = - $ 35000 - $ 1000 /1.10 - $ 1000 / 1.21 + $ 4000 / 1.21
NPV = - $ 35000 - 909.09 - $ 826.45 + $ 3305.78
NPV = - $ 33429.76
Vendor 3
NPV = - $ 25000 - $ 2000 / 1.1 - $ 2200 / 1.12 - $ 2400 / 1.13 - $ 2600 / 1.14 + $ 3000 / 1.14
NPV = - $ 25000 - $ 2000 /1.10 - $ 2200 / 1.21 - $ 2400 / 1.331 - $ 2600 / 1.464 + $ 3000 / 1.464
NPV = - $ 25000 - $ 1818.18 - $ 1818.18 - $ 1803.15 - $ 1775.96 + $ 2049.18
NPV = - $ 30166.29
Alternative or Vendor 3 has the highet NPV therefore Alternativeor Vendor 3 should be selected
jeff jeffy answered 1 year agoRelated Solutions
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please solve asap, thank you!
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