A large organisation is considering replacing part of its vehicle fleet with the latest equipment. Although...
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A large organisation is considering replacing part of its vehicle fleet with the latest equipment. Although such a decision is expensive, it is felt that the investment will be worthwhile in terms of generating future cost savings in repairs, maintenance and running costs and will also help improve the quality of service provided. The company's current cost of borrowing is 12 per cent per annum. Two suppliers have been asked to tender for the project. The relevant costs of the project and the corresponding savings (in terms of reduced costs, increased efficiency, etc.) are shown in the table. Which supplier would you recommend? Year Now 1 2 m 4 5 Supplier A 120 000 0 0 0 0 Cost 0 Savings 0 25 000 30 000 40 000 50 000 25 000 Supplier B Cost 85 000 35 000 0 0 0 0 Savings 0 0 60 000 45 000 35 000 35 000 A large organisation is considering replacing part of its vehicle fleet with the latest equipment. Although such a decision is expensive, it is felt that the investment will be worthwhile in terms of generating future cost savings in repairs, maintenance and running costs and will also help improve the quality of service provided. The company's current cost of borrowing is 12 per cent per annum. Two suppliers have been asked to tender for the project. The relevant costs of the project and the corresponding savings (in terms of reduced costs, increased efficiency, etc.) are shown in the table. Which supplier would you recommend? Year Now 1 2 m 4 5 Supplier A 120 000 0 0 0 0 Cost 0 Savings 0 25 000 30 000 40 000 50 000 25 000 Supplier B Cost 85 000 35 000 0 0 0 0 Savings 0 0 60 000 45 000 35 000 35 000
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Calculate the Present value of cash outflow to decide which supplier to choose ... View the full answer
Related Book For
Intermediate Accounting
ISBN: 978-0176509736
10th Canadian Edition, Volume 1
Authors: Donald Kieso, Jerry Weygandt, Terry Warfield, Nicola Young,
Posted Date:
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