You are required to make a choice among three alternatives for a distribution system for your firm.
The first option involves investment of $30 billion to build a new distribution system costing $30 billion initially and maintenance cost of $1.5 million for the next 25 years. The second option involves initial investment of $15 million to support the existing distribution system. The annual cost would be $2.5 million for the period of 10 years. The final option involves renting a distribution system from another company. For this option, the rental expenses are expected to be $5.5 million every year. Which option is the most economical one if the discount rate is 12%.

Answer rating: 100% (QA)

Heres a breakdown of the cost of each option using the Net Present Value NPV method considering the ... View the full answer