A company is considering two options for the installation of a large piece of equipment. They have had firm offers from two companies. Either option will meet the requirements of the project. Company A has offered to supply and install the equipment for a once off amount of $4,110,000. In the case of the offer by Company A, there will be ongoing maintenance needed which is estimated to cost $33,000, at current prices, payable to a contractor at the end of each year. Company B has offered to supply and install smaller piece of equipment for $3,368,00 and then upgrade it to the equipment equivalent to that offered by company A at the end of the 8th year at a firm price of $3,440,000. In the case of the offer by Company B, there will be ongoing maintenance needed which is estimated to cost $24,000 at current prices, until the equipment is upgraded, payable to a contractor at the end of each year, including the final year. After year 8 , the costs will be the same as for Company A. The cost of capital for the corporation is 9% p.a. Infaltion is estimated to be 2.1%. a. for the period. On the basis of a present value financial comparison, which offer should be accepted? (40 Marks) What other matters might be considered before deciding which offer to accept? (10 Marks) QUESTION 7 [50 marks) A company is considering two options for the installation of a large piece of equipment. They have had firm offers from two companies. Either option will meet the requirements of the project. Company A has offered to supply and install the equipment for a once off amount of $4,110,000. in the case of the offer by Company A, there will be ongoing maintenance needed which is estimated to cost $33,000, at current prices, payable to a contractor at the end of each year. Company B has offered to supply and install smaller piece of equipment for $3,368,00 and then upgrade it to the equipment equivalent to that offered by company A at the end of the 8th year at a firm price of $3,440,000. In the case of the offer by Company B, there will be ongoing maintenance needed which is estimated to cost $24,000 at current prices, until the equipment is upgraded, payable to a contractor at the end of each year, including the final year. After year 8 , the costs will be the same as for Company A. The cost of capital for the corporation is 9% p.a. Infaltion is estimated to be 2.1%. a. for the period. On the basis of a present value financial comparison, which offer should be accepted? (40 Marks) What other matters might be considered before deciding which offer to accept? (10 Marks) A company is considering two options for the installation of a large piece of equipment. They have had firm offers from two companies. Either option will meet the requirements of the project. Company A has offered to supply and install the equipment for a once off amount of $4,110,000. In the case of the offer by Company A, there will be ongoing maintenance needed which is estimated to cost $33,000, at current prices, payable to a contractor at the end of each year. Company B has offered to supply and install smaller piece of equipment for $3,368,00 and then upgrade it to the equipment equivalent to that offered by company A at the end of the 8th year at a firm price of $3,440,000. In the case of the offer by Company B, there will be ongoing maintenance needed which is estimated to cost $24,000 at current prices, until the equipment is upgraded, payable to a contractor at the end of each year, including the final year. After year 8 , the costs will be the same as for Company A. The cost of capital for the corporation is 9% p.a. Infaltion is estimated to be 2.1%. a. for the period. On the basis of a present value financial comparison, which offer should be accepted? (40 Marks) What other matters might be considered before deciding which offer to accept? (10 Marks) QUESTION 7 [50 marks) A company is considering two options for the installation of a large piece of equipment. They have had firm offers from two companies. Either option will meet the requirements of the project. Company A has offered to supply and install the equipment for a once off amount of $4,110,000. in the case of the offer by Company A, there will be ongoing maintenance needed which is estimated to cost $33,000, at current prices, payable to a contractor at the end of each year. Company B has offered to supply and install smaller piece of equipment for $3,368,00 and then upgrade it to the equipment equivalent to that offered by company A at the end of the 8th year at a firm price of $3,440,000. In the case of the offer by Company B, there will be ongoing maintenance needed which is estimated to cost $24,000 at current prices, until the equipment is upgraded, payable to a contractor at the end of each year, including the final year. After year 8 , the costs will be the same as for Company A. The cost of capital for the corporation is 9% p.a. Infaltion is estimated to be 2.1%. a. for the period. On the basis of a present value financial comparison, which offer should be accepted? (40 Marks) What other matters might be considered before deciding which offer to accept? (10 Marks)