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You are considering a maintenance contract from two vendors. Vendor Y charges $80,000 upfront and then $13,000 per year for the three- year life of the contract. Vendor Z charges $100,000 upfront and then $10,000 per year for the two-year life of the contract. Compute the NPV and EAA for each vendor assuming an 9% cost of capital. Which vendor should you choose?

You are considering a maintenance contract from two vendors. Vendor Y charges $80,000 upfront and then $13,000 per year for the three- year life of the contract. Vendor Z charges $100,000 upfront and then $10,000 per year for the two-year life of the contract. Compute the NPV and EAA for each vendor assuming an 9% cost of capital. Which vendor should you choose?

Essentials Of Investments
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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You are considering a maintenance contract from two vendors. Vendor Y charges $80,000 upfront and then $13,000 per year for the three- year life of the contract. Vendor Z charges $100,000 upfront and then $10,000 per year for the two-year life of the contract. Compute the NPV and EAA for each vendor assuming an 9% cost of capital. Which vendor should you choose?
Transcribed Image Text:You are considering a maintenance contract from two vendors. Vendor Y charges $80,000 upfront and then $13,000 per year for the three- year life of the contract. Vendor Z charges $100,000 upfront and then $10,000 per year for the two-year life of the contract. Compute the NPV and EAA for each vendor assuming an 9% cost of capital. Which vendor should you choose?
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