Could you provide solution? Problem 6-8 Ellison Inc., a manufacturer of steel sc

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Could you provide solution?

Problem 6-8 Ellison Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering Department has determined that each vendor's punch press is substantially identical and each has a useful life of 20 years. In addition, Engineering has estimated that required year-end maintenance costs will be $1,590 per year for the first 5 years, $2,470 per year for the next 10 years, and $3,450 per year for the last 5 years. Following is each vendor's sale package. tine ntne cor rolf s1 1 soar te 20-year maintenance service contract, under which vendor A wil perfom all vear-end maintenanice at a one- Vendor A: $55,390 cash at time of delivery and 10 year-end payments of $19,620 each. Vendor A offers all its customers the right to purchase at the time of sale a separate 20-year maintenance service contract, under which Vendor A will perform all year-end maintenance at a one- time initial cost of $11,800 Vendor B: Forty semiannual payments of $9,430 each, with the first installment due upon delivery. Vendor B will perform all year-end maintenance for the next 20 years at no extra charge. Vendor C: Full cash price of $141,910 will be due upon delivery. Assuming that both Vendors A and B will be able to perform the required year-end maintenance, that Ellison's cost of funds is 10%, and the machine will be purchased on January 1, compute the following: (Use the tables below.) TABLE 6-4 P PRESENT VALUE OF AN ORDINARY ANNUITY OF 1

Explanation / Answer

vendor A Initial Cash Outflow A 55390 One Time year end maintenance cost B 11800 Annual Cash Outflow 19620 PVIFA (10%,10) 6.14457 Present Value of Cash Flow C 120556.4634 Total Present Value A+B+C 187746 Vendor B Annual Cash Outflow 9430 PVIFA (5%,39) 17.01704 Present Value of Cash Flow   160470.6872 Intial Payment 9430 Total PV 169901 Vendor C Initial cash Outflow 141910 Present Value of Maintanenece Cost 18581.926 Total Present Value 160492 The press should be purchased from Vendor C Present Value of Maintianenece Cost Year cash outflow Dis.Factor 10% Dis. Cash outflow 1 1590 0.90909 1445.453 2 1590 0.82645 1314.048 3 1590 0.75131 1194.589 4 1590 0.68301 1085.99 5 1590 0.62092 987.2639 6 2470 0.56447 1394.249 7 2470 0.51316 1267.499 8 2470 0.46651 1152.272 9 2470 0.42410 1047.52 10 2470 0.38554 952.291 11 2470 0.35049 865.7191 12 2470 0.31863 787.0173 13 2470 0.28966 715.4703 14 2470 0.26333 650.4275 15 2470 0.23939 591.2978 16 3450 0.21763 750.8198 17 3450 0.19784 682.5634 18 3450 0.17986 620.5122 19 3450 0.16351 564.102 20 3450 0.14864 512.82 PV 18581.93

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