What are some major nonfinancial uncertainties that a company should consider when making decisions on where to
Question:
What are some major nonfinancial uncertainties that a company should consider when making decisions on where to source product? Unipart spends about $150 million on MRO supplies each year, although this varies with their utilization. Next year will likely be a strong year, in which high utilization will keep MRO spending at $150 million. However, there is a 25 percent chance that spending will drop by 10 percent. The second year, there is a 50 percent chance that the spending level will stay where it was in the first year and a 50 percent chance that it will drop by another 10 percent. Unipart uses a discount rate of 20 percent.
Assume all costs are incurred at the beginning of each year
(so Year 1 costs are incurred now and Year 2 costs are incurred in a year).
Which B2B marketplace should Unipart buy its parts from?
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