Problem 2: In the following example an agency needs to buy a fridge for its staff canteen. It has the option of buying second-hand or new. To assist in the decision-making process a quick TCO is done. Assumptions: 1. The fridge will be used for 5 years 2. The second-hand unit will be 5 years old. 3. The second-hand unit will not come with a warranty. It is likely to break down once during the additional five years of its life and predicted to occur in year 7 of its life. Costs will be associated with a repair and spare parts. 4. The extended warranty will occur after year 3, and there is associated cost paid once for the extension for the next 4 years. 5. Failure of the unit could lead to the loss of perishable food items and health and safety issues for staff. The detail on cost is shown in the table below: Cost/ benefit item Option 1: second hand Option 2: new Purchase price $500 $1,000 Delivery costs $50 free by supplier Extended warranty not available $75 Electricity consumption over 5 $500 $200 years Maintenance $200 Spart parts $250 Less value on resale nil $250 Nil: Not in list a. Use TCO to choose the better solution for procurement project. b. Take the interest rate of 10% into decision consideration. nil nil