In case of absence (sick leave etc.) the contractor has to replace the absentee. Thus, there are no fluctuations regarding the quantity of cleaning services, which means that 2,520 man-hours (63 people x 5 days per week x 8 hours per day) are provided for each one of the 52 weeks of the year.

Alternatively, the organization may discontinue the outsourcing contract, recruit cleaners and purchase cleaning materials and equipment. In this case, you estimated the following costs:

• Average labor cost of €1,270 / employee / month (12 months / year), which raises by 4% on completion of 3 years of work.

• Supply of materials and operating costs similar to those of the contractor (s/n 2,3,5) of €140,000 / year.

• Acquisition of cleaning equipment at €54,000 of a 5-year useful life, at the end of which it will not be usable.

• Equipment maintenance and repairs at €1,000 / year.

• Administrative costs at €4,000 / year.

Questions

Under the basic scenario you hire 70 people. Is there any financial benefit in terms of present value? Consider that cost of capital stands for 4%.