The Waygate Corporation is interested in contracting out a testing function.Two firms have submitted bids. Waygate believes that both companies will be able to deliver equivalent services for the 5-year period. Determine which one Waygate should choose if the corporate MARR (investment market rate) is 25% and price inflation is assumed to be 3.5% per year over the next 5 years. Company Alpha costs: Costs will be $150,000 in year-1 dollars the first year and will increase at a rate of 5% over the 5-year period. Company Beta costs: Costs will be a constant $150,000 per year in terms of today’s dollars over the 5-year period.
The Waygate Corporation is interested in contracting out a testing function.Two firms have submitted bids. Waygate believes that both companies will be able to deliver equivalent services for the 5-year period. Determine which one Waygate should choose if the corporate MARR (investment market rate) is 25% and price inflation is assumed to be 3.5% per year over the next 5 years. Company Alpha costs: Costs will be $150,000 in year-1 dollars the first year and will increase at a rate of 5% over the 5-year period. Company Beta costs: Costs will be a constant $150,000 per year in terms of today’s dollars over the 5-year period.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 18P
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The Waygate Corporation is interested in contracting out a testing function.Two firms have submitted bids. Waygate believes that both companies will be able to deliver equivalent services for the 5-year period. Determine which one Waygate should choose if the corporate MARR (investment market rate) is 25% and price inflation is assumed to be 3.5% per year over the next 5 years. Company Alpha costs: Costs will be $150,000 in year-1 dollars the first year and will increase at a rate of 5% over the 5-year period. Company Beta costs: Costs will be a constant $150,000 per year in terms of today’s dollars over the 5-year period.
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