Home Insert Page Layout Formulas Data Review A в Expected Annual Percentage Increase 2017 Cloudburst Square Cloudburst Square $567,000 $3,510,000 $364,800 $3,060,000 $202,200 $ 450,000 3 Sales Revenues Cost of Sales 6% 5% 5.5% 4.5% 5 Net cash flow 4,

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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. Ortel Telecom sells telecommunication products and services to a variety of small businesses. Two of Ortel’s key clients are Square and Cloudburst, both fast-growing technology start-ups located in New York City. Ortel has compiled information regarding its transactions with Square and Cloudburst for 2017, as well as its expectations regarding their interactions over the next 3 years: (in pic)

Ortel’s transactions with Square and Cloudburst are in cash. Assume that they occur at year-end. Ortel is headquartered in the Cayman Islands and pays no income taxes. The owners of Ortel insist on a required rate of return of 12%.

Q. Cloudburst threatens to switch to another supplier unless Ortel gives a 10% price reduction on all sales starting in 2018. Calculate the 3-year NPV of Cloudburst after incorporating the 10% discount. Should Ortel continue to transact with Cloudburst? What other factors should it consider before making its final decision?

 

Home
Insert
Page Layout
Formulas
Data
Review
A
в
Expected Annual
Percentage Increase
2017
Cloudburst
Square
Cloudburst
Square
$567,000 $3,510,000
$364,800 $3,060,000
$202,200 $ 450,000
3 Sales Revenues
Cost of Sales
6%
5%
5.5%
4.5%
5 Net cash flow
4,
Transcribed Image Text:Home Insert Page Layout Formulas Data Review A в Expected Annual Percentage Increase 2017 Cloudburst Square Cloudburst Square $567,000 $3,510,000 $364,800 $3,060,000 $202,200 $ 450,000 3 Sales Revenues Cost of Sales 6% 5% 5.5% 4.5% 5 Net cash flow 4,
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