Question
AloneStar delivers hot, fresh food to remote, temporary campsites in Glacier National Park. They require orders to be made and payment received 1 month in
AloneStar delivers hot, fresh food to remote, temporary campsites in Glacier National Park. They require orders to be made and payment received 1 month in advance in order to purchase the food and prepare and deliver it at the right time and place. (AloneStar's costs can be considered to be paid on the day of delivery.) There are two order options: pay up front, 30% above their total costs or pay upon delivery only if customer is actually at campsite, 40% above their total costs. AloneStar has an annual discount rate of 18%. Suppose an order comes in that will cost $100 to prepare and AloneStar estimates the probability the campers will be at the campsite is 95%.
What is the NPV of the order if the campers pay up front?
What is the NPV of the order if the campers pay upon delivery?
What mark-up for payment at delivery would cause the NPV of the 2 payment options to be the same?
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