Question 3 A government owned corporation is considering two options for the installation of a large piece of equipment. They have had firm offers from two companies. Company A has offered to supply and install the infrastructure for a once off amount of $7,345,200. Company B has offered to supply and install smaller piece of equipment for $4,235,700 and then upgrade it to the equipment equivalent to that offered by company A at the end of the 7th year at a firm price of $5,345,100. Either option will meet the requirements of the project. In the case of the offer by Company A, there will be ongoing annual maintence needed which is estimated to cost $57,000 p.a. at current prices. In the case of the offer by Company B, there will be ongoing annual maintence needed which is estimated to cost $34,000 p.a. at current prices, until the equipment is upgraded. After year 7, the costs will be the same as for Company A. The cost of capital for the corporation is 9% p.a. Infaltion is estimated to be 1.5% p.a. for the period. On the basis of a financial comparison, which offer should be accepted. Question 3 A government owned corporation is considering two options for the installation of a large piece of equipment. They have had firm offers from two companies. Company A has offered to supply and install the infrastructure for a once off amount of $7,345,200. Company B has offered to supply and install smaller piece of equipment for $4,235,700 and then upgrade it to the equipment equivalent to that offered by company A at the end of the 7th year at a firm price of $5,345,100. Either option will meet the requirements of the project. In the case of the offer by Company A, there will be ongoing annual maintence needed which is estimated to cost $57,000 p.a. at current prices. In the case of the offer by Company B, there will be ongoing annual maintence needed which is estimated to cost $34,000 p.a. at current prices, until the equipment is upgraded. After year 7, the costs will be the same as for Company A. The cost of capital for the corporation is 9% p.a. Infaltion is estimated to be 1.5% p.a. for the period. On the basis of a financial comparison, which offer should be accepted