CORe Exam Dumps | A supply manager Is evaluating bids for a new delivery van. Supplier J, which has provided similar equipment

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HBX.CORE.v2024-09-27.q132
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Question 85/132

A supply manager Is evaluating bids for a new delivery van. Supplier J, which has provided similar equipment in the past, quotes a price of $50,000. Supplier K quotes a price of $52,500, but Includes an offer to buy back the van at the end of five years for $3,000. Both suppliers' bids meet specifications and delivery requirements.
At a 10% opportunity cost of capital, and with the 5-year present value of $1 at $.62, which supplier should the supply manager choose, and why?

A. Supplier K, as the firm will save $500

B. Supplier J, as it provides the best value

C. Supplier J, based on prior satisfactory performance

D. Supplier K, to save money over the van's life cycle

Correct Answer: D

* Context: Evaluating bids for a delivery van with consideration of cost and potential buyback offers.
* Cost Calculation:
* Supplier J: $50,000
* Supplier K: $52,500 with a $3,000 buyback.
* Opportunity Cost: The present value (PV) factor for 5 years at 10% is 0.62.
* Supplier K's Net Cost: $52,500 - ($3,000 * 0.62) = $52,500 - $1,860 = $50,640
* Comparison: Supplier J's cost is $50,000, Supplier K's effective cost is $50,640.
* Lifecycle Savings: Supplier K offers a buyback, which provides future value and offsets initial higher cost.
* Conclusion: Over the van's life cycle, Supplier K's offer results in cost savings considering the buyback.
References
* Capital Budgeting Techniques by Brigham and Ehrhardt.
* Present Value calculations and decision-making in procurement.

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