.You have received bids from two manufacturers for purchase of a new dragline. The first bid (A) is competitive but from a company that requires payment in full on placement of order. The second bid (B) is for a higher price, but no payment is required until the machine starts digging in 3 years. Which is the preferred option?

Data:

Dragline A bid price (payment today) = $30,000,000

Dragline B bid price (payment in 3 years' time) = $40,000,000

Required return on capital (discount rate) = 15%

Time n: 3 years