Im stuck on a Accounting question and need an explanation.
You should be able to calculate the cash flow for each year and the NPV for each year cash flow… also be able to add these up for a total NPV for each supplier for the whole program.
You are sourcing a part that will have three years of volume:
Year 1 volume: 50,000 units
Year 2 volume: 100,000 units
Year 3 volume: 350,000 units
Two suppliers have provided you quotes as follows:
Supplier A: $57.93 launch price for year 1, then a 2% reduction for year 2 pricing, and then another 1% reduction for year 3 pricing
Supplier B: $63.67 launch price for year 1, then a 6% reduction for year 2 pricing, and then another 2% reduction for year 3 pricing
Your company’s internal cost of capital is 10%