A large organisation is considering replacing part of its vehicle fleet with the latest equipment. Although such a decision is expensive, it is felt that the investment will be worthwhile in terms of generating future cost savings in repairs, maintenance and running costs and will also help improve the quality of service provided. The company’s current cost of borrowing is 12 per cent per annum. Two suppliers have been asked to tender for the project. The relevant costs of the project and the corresponding savings

(in terms of reduced costs, increased efficiency, etc.) are shown in Table 15.12.

(a) Which supplier would you recommend?

(b) Calculate the IRR for each supplier and explain how this could be used.