1. The spreadsheet below estimates the total cost for each supplier. Analyze each of three supplier options and compare their costs to the cost of the U.S. supplier.

2. Looking at your preferred supplier, what suggestions do you have for lowering your total costs?

3.

Imagine your boss asks you to look at a 3-year contract. After some quick analysis, you determine that prices in China and Ukraine will rise even as prices in Netherlands and U.S. decrease (see the following table). You expect this lawn mower to be a big hit with sales increasing as follows:

Year 1: 36,000 (3,000 per month)

Year 2: 72,000 (6,000 per month)

Year 3: 108,000 (9,000 per month)

Calculate the net present value (NPV) for each supply option using a 10% cost of capital. Which supplier would you choose now? Why?

Unit Price Packaging Tooling Inland Transportation Ocean Transportation Freight Forwarder Fee Insurance Brokerage Fee Travel Administrative U.S. Port Handling Charge Duty Brokerage 2 Port to Avondale Cost of Capital Warehouse Costs Defect Rate Environmental Surcharge Environmental Surcharge Price for Container Price Each China Ukraine Netherlands U.S. (Container) (Container) (Container) (each) Calculations $42,000.00 $60,000.00 $85,000.00 $120.00 Price 1000 $2,000.00 $2,500.00 $1,750.00 $1.00 Cost 1000 $100.00 $75.00 $125.00 $0.03 Tooling Cost/Annual Rate of Sale* 1000 $200.00 $750.00 $200.00 $5.20 Stated $3,000.00 $4,500.00 $3,500.00 Stated $200.00 $400.00 $100.00 Stated $420.00 $600.00 $850.00 1% * container unit price $400.00 $400.00 $400.00 Stated (Hedging Currency) $250.00 $250.00 $250.00 ($9000 per year/36000)* 1000 $150.00 $200.00 $75.00 Stated Amount $1,500.00 $1,500.00 $1,500.00 Stated $2,100.00 $3,000.00 $4,250.00 5%* container unit price $500.00 $500.00 $500.00 Stated $1,500.00 $1,500.00 $1,500.00 Stated $840.00 $1,200.00 $1,700.00 [(Annual Rate/12) * (Container Value * 3)]/3 $1,600.00 $1,600.00 $1,600.00 Cubest* 1.00 1000 $2,100.00 $1,800.00 $850.00 Defect % * 1000 unit price $500.00 Stated $750.00 Stated $58,860.00 $80,775.00 $105,400.00 Sum of all costs per containter $58.86 $80.78 $105.40 $126.23 Unit Price Year China 1 Eastern Western Europe Europe $80.77 $105.40 $90.47 $103.20 $97.71 $101.23 United States $126.23 $119.92 $117.52 $58.86 $67.69 $74.46 2 WN 3 Unit Price Packaging Tooling Inland Transportation Ocean Transportation Freight Forwarder Fee Insurance Brokerage Fee Travel Administrative U.S. Port Handling Charge Duty Brokerage 2 Port to Avondale Cost of Capital Warehouse Costs Defect Rate Environmental Surcharge Environmental Surcharge Price for Container Price Each China Ukraine Netherlands U.S. (Container) (Container) (Container) (each) Calculations $42,000.00 $60,000.00 $85,000.00 $120.00 Price 1000 $2,000.00 $2,500.00 $1,750.00 $1.00 Cost 1000 $100.00 $75.00 $125.00 $0.03 Tooling Cost/Annual Rate of Sale* 1000 $200.00 $750.00 $200.00 $5.20 Stated $3,000.00 $4,500.00 $3,500.00 Stated $200.00 $400.00 $100.00 Stated $420.00 $600.00 $850.00 1% * container unit price $400.00 $400.00 $400.00 Stated (Hedging Currency) $250.00 $250.00 $250.00 ($9000 per year/36000)* 1000 $150.00 $200.00 $75.00 Stated Amount $1,500.00 $1,500.00 $1,500.00 Stated $2,100.00 $3,000.00 $4,250.00 5%* container unit price $500.00 $500.00 $500.00 Stated $1,500.00 $1,500.00 $1,500.00 Stated $840.00 $1,200.00 $1,700.00 [(Annual Rate/12) * (Container Value * 3)]/3 $1,600.00 $1,600.00 $1,600.00 Cubest* 1.00 1000 $2,100.00 $1,800.00 $850.00 Defect % * 1000 unit price $500.00 Stated $750.00 Stated $58,860.00 $80,775.00 $105,400.00 Sum of all costs per containter $58.86 $80.78 $105.40 $126.23 Unit Price Year China 1 Eastern Western Europe Europe $80.77 $105.40 $90.47 $103.20 $97.71 $101.23 United States $126.23 $119.92 $117.52 $58.86 $67.69 $74.46 2 WN 3