Vodafone Inc. is considering investing ?n a new Chile trash project in America.
ID: 2641808 • Letter: V
Question
Vodafone Inc. is considering investing ?n a new Chile trash project in America. Specifically, they have three options: two they can buy and one ?s a subcontract. Unfortunately, they have recently learned that the sole sources for processes they can buy are getting out of the business and only one machine of each is available. Their Chile trash project will last five years and they will sell the machines after five years but have no estimate of salvage. A: Costs $280,000, has annual operating costs of $85.000 and a service life of five years. Estimated salvage is $-130000 (yes, negative). B: Costs $350000, has annual operating costs of $100.000 and a service life of five years with an estimated salvage of $150,000. C: Subcontract to Summer Corp at an annual cost of $100.000, guaranteed for four years and requiring a four-year commitment. This option is renewable for another four years at an increase for a maximum of $120000 per year if needed because of market conditions. (That?s up another $20.000 per year). Use a MARR of 12% and assess options using present worth. Under what conditions might Summer Corp be a better option? Discuss, ?n depth, your conclusions. Discuss, ?n detail, what happens if the project gets cancelled after two years, i.e., lifecycle ends early. Show your calculations.Explanation / Answer
among the three options going for subcontract is better option, there is no need to go with calculations.
because the two alternatives are providing huge salvage value ofter the life of the project and in subcontract process if there is any negitive salvage value it is going to be bare by the subcontractor only.
so, going with subcontract is better option.
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