Two alternative suppliers are offering to provide a system to recover an organic compound from a process stream in your company's chemical production facility. The cost of the two identical options are quoted as follows: Supplier #1: Total cost of $175,000; 70% of which must be paid now, and the balance to be paid in 12 months time upon completion of the installation of the system. Supplier #2: Total price of $180,000; 25% to be paid now, and the balance to be paid in 3 equal installments at 4 month intervals. You are asked to proceed with the project using the lower cost supplier. Assuming a nominal annual interest rate of 12%, compounded monthly, which one do you choose?
Two alternative suppliers are offering to provide a system to recover an organic compound from a process stream in your company's chemical production facility. The cost of the two identical options are quoted as follows: Supplier #1: Total cost of $175,000; 70% of which must be paid now, and the balance to be paid in 12 months time upon completion of the installation of the system. Supplier #2: Total price of $180,000; 25% to be paid now, and the balance to be paid in 3 equal installments at 4 month intervals. You are asked to proceed with the project using the lower cost supplier. Assuming a nominal annual interest rate of 12%, compounded monthly, which one do you choose?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Two alternative suppliers are offering to provide a system to recover an organic compound from a
process stream in your company's chemical production facility. The cost of the two identical options are
quoted as follows:
Supplier #1: Total cost of $175,000; 70% of which must be paid now, and the balance to be paid in 12
months time upon completion of the installation of the system.
Supplier #2: Total price of $180,000; 25% to be paid now, and the balance to be paid in 3 equal
installments at 4 month intervals.
You are asked to proceed with the project using the lower cost supplier. Assuming a nominal annual
interest rate of 12%, compounded monthly, which one do you choose?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0212e7b8-a081-46c9-8d48-4f245b5f499f%2F60e65915-b17e-40bf-be10-ec29a2247d3a%2Fwmllxp_processed.png&w=3840&q=75)
Transcribed Image Text:Two alternative suppliers are offering to provide a system to recover an organic compound from a
process stream in your company's chemical production facility. The cost of the two identical options are
quoted as follows:
Supplier #1: Total cost of $175,000; 70% of which must be paid now, and the balance to be paid in 12
months time upon completion of the installation of the system.
Supplier #2: Total price of $180,000; 25% to be paid now, and the balance to be paid in 3 equal
installments at 4 month intervals.
You are asked to proceed with the project using the lower cost supplier. Assuming a nominal annual
interest rate of 12%, compounded monthly, which one do you choose?
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