I’m 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.

NPV problem

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%

(with explantion)