Compute NPV and TCO for each of the two supplier purchase options for the Newgreen Corporation, Hotel division. The money market account for Newgreen Corporation is currently earning 8% simple interest (Follow the same format in the example below).

Determine from your calculations which is the best supplier to select based on this data alone.

The Newgreen Corporation, Hotel division case study

Frederick Gainer, the C.O.O. of the Newgreen Corporation Hotel division, has been getting complaints from various hotels in his chain regarding the quality of the televisions that are currently in use. The complaints seem to center around the size, age, reliability and picture quality. He has asked Amy, the head of Procurement to bring him some details regarding what it might cost to replace and maintain new "smart" televisions for his top three hotels.

Frederick believes that this new technology can be utilized to return more profits for the Hotel division. He would like to see a yearly cleaning and check-up on each TV and would like to see them replaced again at the end of the warranty period to alleviate future problems with these televisions. Amy found that they will require 1,000 SMART TVs and got written quotes from three suppliers.

She has narrowed the choices to two finalists; Supplier A which is in her own city and Supplier B which is in a different province. Amy had asked that each supplier quote on installation, removal, maintenance and disposal of the old televisions. Amy found that delivery costs for Supplier A would cost her $45 per TV and the out-of-town TVs from Supplier B would cost her $50 each to have them delivered to the hotels as required.

Dave Brenner, on behalf of Supplier A, was very keen on getting her business and quoted a base price of $675 per television, mounting hardware would be extra at $65 ea. Dave offered an extended waarranty for three years at a cost of $135 ea. Supplier A would be "on call" with equipment support to handle emergencies for a fee of $25/month/TV and would supply the network for these "smart" TVs at $80/month/TV. Each TV would take one hour to install at a rate of $125/hour. Amy wanted 100 extra remotes to ensure she can quickly replace those that are lost or damaged. Dave says he can sell her 100 remotes at a cost of $20 each. Dave says that his company would go to each hotel on a yearly basis to clean the vents etc. on each unit and test it electronically for any problems. Amy has estimated the cost of this downtime to be $50/hour. Since this is actually downtime on the units, he maintained that he could limit this downtime to 5 hours/TV/year. The supplier would provide a salvage value of $42 per TV and would be done locally.

Julia Rawlings from Supplier B quoted a base price of $685 per television, mounting hardware would be extra at only $55 ea and an extended warranty for three years would cost $130 ea. Julia says her company would be available with equipment support to handle emergencies for a fee of $20/month/TV and would supply the network for these "smart" TVs at $70/month/TV. Each TV would cost Newgreen only $100 to have them installed as their crew is very proficient at installations. Since Amy wanted 100 extra remotes, Julia says she will give her 50 extra remotes at no extra cost but will have to charge Amy $20 each for the other 50. Julia says that her company would not need to go to each hotel on a yearly basis to clean the vents etc. She says that her company would limit Newgreen's downtime to only 1 hour/TV/year by simply "swapping" each unit annually with a pre-cleaned and tested unit. Old televisions would have a salvage value of $30 per TV and would be done at a reputable recycling facility in her neighboring province

Example of a TCO Model including NPV Calculation

Steps	Cost Elements	Cost Measurements
Step 1	Purchase Price
	Equipment	Supplier Quote: $1,200 per Laptop
	Software License A	Supplier Quote: $300 per Laptop
	Software License B	Supplier Quote: $100 per Laptop
	Software License C	Supplier Quote: $50 per Laptop
Step 2	Acquisition Costs
	Sourcing	2 FTE @$85K and $170K for 2 Months
	Administration	1 PO @ $150, 12 Invoices @ $40 Each
Step 3	Usage Costs
	Installation	$700 per Laptop
	Equipment Support	Supplier Quote: $120 per Month per Laptop
	Network Support	Supplier Quote: $100 per Month per Laptop
	Warranty	$120 Per Laptop for 3 year warranty
	Opportunity Cost-Lost Productivity	Downtime 15 hours per Laptop per Year @ $30 per Hour
Step 4	End of Life
	Salvage Value	$36 per Laptop

Table B:

Steps	Cost Elements	Present	Year 1	Year 2	Year 3
Step 1	Purchase Price
	Equipment	$1,200,00
	Software License A	$300,00
	Software License B	$100,000
	Software License C	$50,000
Step 2	Acquisition Cost
	Sourcing	$42,500
	Administration	$150	$480	$480	$480
Step 3	Usage Costs
	Installation	$700,000
	Equipment Support		$1,440,000	$1,440,000	$1,440,000
	Network Support		$1,200,000	$1,200,000	$1,200,000
	Warranty	$120,000
	Opportunity Cost-Lost Productivity		$450,000	$450,000	$450,000
Stage 4	End of Life
	Salvage Value				-$36,000
Total	$2,512, 650	$3,090,480	$3,090,480	$3,054,480	Grand Total of Present Values
Present Value @ 12%	$2,512, 650	$2,759,357	$2,463,712	$2,174,119	$9,909,837

Grading:

This exercise is graded out of 100 total points, and is worth 10% of your overall course grade.