A principal equipment supplier has approached Branden Company, a producer of plastic toys with an offer...

 

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A principal equipment supplier has approached Branden Company, a producer of plastic toys with an offer for a service contract. Extruding Machines Corporation (EMC) offers to take over all of Braden's equipment repair and servicing for five years in exchange for one-time payment today. Braden's managers know their company spends $7,000 on maintenance at the end of every year, if Braden requires a minimum return of 8% on all its investments, how much should it be willing to pay for EMC's service contract? A principal equipment supplier has approached Branden Company, a producer of plastic toys with an offer for a service contract. Extruding Machines Corporation (EMC) offers to take over all of Braden's equipment repair and servicing for five years in exchange for one-time payment today. Braden's managers know their company spends $7,000 on maintenance at the end of every year, if Braden requires a minimum return of 8% on all its investments, how much should it be willing to pay for EMC's service contract?

Answer rating: 100% (QA)

Amount paid by Braden would be equivalent to the Present Value of future ... View the full answer