Home Insert Page Layout Formulas Data Review в Expected Annual Percentage Increase 2017 Square Cloudburst $567,000 $3,510,000 $364,800 $3,060,000 $202,200 $ 450,000 Square 6% Cloudburst 3 Sales Revenues 4 Cost of Sales 5 Net cash flow 5.5% 5% 4.5% 2.
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:
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
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?
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