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?

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter12: Capital Budgeting: Decision Criteria

Section: Chapter Questions

Problem 10P: Project S has a cost of $10,000 and is expected to produce benefits (cash flows) of $3,000 per year...

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