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Sandhill Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate
Sandhill Inc., a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering Department has determined that each vendor's punch press is substantially identical and each has a useful life of years. In addition, Engineering has estimated that required yearend maintenance costs will be $ per year for the first years, $ per year for the next years, and $ per year for the last years. Following is each vendor's sales package.
Vendor A: $ cash at time of delivery and yearend payments of $ each. Vendor A offers all its customers the right to purchase at the time of sale a separate year maintenance service contract, under which Vendor A will perform all yearend maintenance at a onetime initial cost of $
Vendor B: Forty semiannual payments of $ each, with the first installment due upon delivery. Vendor B will perform all yearend maintenance for the next years at no extra charge.
Vendor C: Full cash price of $ will be due upon delivery.
Assuming that both Vendors A and will be able to perform the required yearend maintenance, that Sandhill's cost of funds is and the machine will be purchased on January compute the following:
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