Sea Farming is using a water pump to drain some ditches in case of heavy rain. The old pump is in need of replacement and the company has two offers.

The first comes from Alstermo AB in Sweden. The offer amounts to an investment of £200 000 and yearly operational cost of £50 000.

The other offer comes from Offshore Equipment Ltd outside Birmingham. This offer amounts to only £90 000 and a yearly operational cost of £50 000

The pump from Alstermo AB will last for 9 years before needed to be replaced and the other pump will be replaced after 6 years.

This is a tricky situation and you are asked to assist with full analysis of the offers and a proposal of what to decide for. The required rate Sea Farming is using for this type of investment is 12%.

Answer rating: 100% (QA)

Scenario 1 Alstermo AB Investment cost 200000 Yearly operational cost 50000 Pump lifespan 9 yea... View the full answer