Door2DoorCo are a large courier company who have just received a shipment of X new vans. They wish to lock in a tyre supply contract to keep these vans well shod over the Y months that they intend to keep the vans. The vans come with low quality tyres that will need to be replaced in 2 months. Two suppliers, ThriftyTread and WiserWheels have expressed interest at supplying tyres at a fixed price for the duration. The offers are summarised below

Number of Vans, X 100

Corporate Discount Rate J1 = 14.03% p.a

Initial Tyre Life 2 months

Keep vans for (Y) 38 months

ThriftyTread

Tyre price $100.00

Tyre life Four months

Tyres replaced at 2, 6, 10, ..., 34, 38 months

WiserWheels

Tyre price $77.50

Tyre life Three months

Tyres replaced at 2, 5, 8, ..., 35, 38 months

a. Determine the value in period 2 dollars of the expenditure stream if Door2DoorCo decide to go with Thrifty Treads. [Hint, you will firstly need to find the j3 rate equivalent to the corporate discount rate, you will then need to find the PV of the expenditure stream in period 2 dollars]

b.Thus determine the present value of the expenditure stream if Door2DoorCo decide to go with Thrifty Treads.

c. Determine the value in period 2 dollars of the expenditure stream if Door2DoorCo decide to go with Wiser Wheels.

d. Thus determine the present value of the expenditure stream if Door2DoorCo decide to go with Wiser Wheels

e. Comparing your answers for part (b) with part (d), OR part (c) with part (e), explain which tyre supplier Door2DoorCo should choose

f.Suggest three legitimate business considerations which a manager may take into account that might influence or even change the recommendation from part (f). NB "These tyres are prettier", "This company will bribe me with a kickback", or "My wife works for that company" are NOT legitimate business reasons. (Write around 20~30 words explaining/justifying each consideration.)