Question
The City of Albany is considering three proposals to renovate one of its buildings. Company A charges $30,000 upfront payment now and requires three annual
The City of Albany is considering three proposals to renovate one of its buildings. Company A charges $30,000 upfront payment now and requires three annual payments of $5,000 in the next three years (annual payment coming at the end of each year). Company B offers to get the project done with a total cost of $40,000, which is due now at the beginning of the project. Company C will not bill the city until the project is done in three years. Company C charges the city $50,000 at the end of the third year.
(a) Based on Time Value of Money analysis, if the city uses a discount rate of 5% for analysis, which proposal is the best one and why? (Hint: use annually compounded interests)
(b) If the discount rate changes to 8%, will you change your decision and why?
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