REV. MAY 30, 2008
Riggs-Vericomp Negotiation (A)
Confidential Instructions for RIGGS ENGINEERING
In this exercise, you represent Riggs Engineering. Your company manufactures and services sophisticated recycling equipment for the computer industry. You are trying to close a deal with
Vericomp. It has expressed serious interest in acquiring one of your systems to reprocess solvents that it uses in cleaning the chips that it produces.
Up to this point, negotiations with Vericomp have been handled by one of your colleagues, who is now out of the country. You have full authority to reach agreement—or to end the negotiation with
Vericomp without a deal, if their representative insists on terms that are unattractive to…show more content… Payment schedule It is common in this industry for manufacturers to sell their equipment and services on an installment basis, though obviously you would rather be paid sooner than later. For planning and budgeting purposes, your company uses a 10 percent annual discount rate. There are three different payment options: “level” (in which regular installments are made over the life of the contract), “front-loaded” (in which the customer pays more at the beginning of the contract than the end), and “back-loaded” (in which the customer pays less at the beginning than at the end). Your company thus applies the following factors when calculating the present value of different price and payment packages:
83 percent of nominal price
76 percent of nominal price
68 percent of nominal price
In short, you would be willing to reduce the nominal price somewhat if Vericomp would agree to accelerate its payments, though you would not want to give too deep a cut.
Delivery date When your company originally spoke with Vericomp, the earliest it could accept installation of the equipment would be six months from now. Privately, however, you have just learned that an important job with another customer has been postponed. To avoid underutilizing staff, you would be willing to give