Question
Imagine your boss asks you to look at a 3-year contract. After some quick analysis, you determine that prices in China and Ukraine will rise
Imagine your boss asks you to look at a 3-year contract. After some quick analysis, you determine that prices in China and Ukraine will rise even as prices in the Netherlands and the U.S. decrease (see the following table). You expect this lawn mower to be a big hit with sales increasing as follows:
Year 1: 36,000 (3,000 per month)
Year 2: 72,000 (6,000 per month)
Year 3: 108,000 (9,000 per month)
Year China Eastern Europe Western Europe United States
1 $58.86 $80.77 $105.40 $126.23
2 $67.69 $90.47 $103.20 $119.92
3 $74.46 $97.71 $101.23 $117.52
Calculate the net present value (NPV) for each supply option using a 10% cost of capital. Which supplier would you choose now? Why?
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