ST 5-1

Class activity After following the evaluation procedure, supplier A and B have shortlisted for procurement of complete installation system of the factory. Both the supplier have quoted the cost of project as per following:

CostAB

Cost of system130,00080,000

Transportation10,00015,000

Installation cost5,0000

Insurance5,0005,000

150,000100,000

Company has estimated the expected revenues from the installation of system and cost based on study of technical specification of the project which is as under, company will obtain funds at 15%:

Supplier AYear01234

Sales250,000300,000350,000450,000

Cost of Goods sold

Raw material usage70,00090,000110,000170,000

Electricity10000200004000045000

POL10000150002000020000

Salary expense30000450006000065000

Rent expense20000200002000020000

Dep. Expense????

Cash flow before taxes

Taxes 30%

Cash flow after taxes

Dep. expense????

Capital expenditure ?

Working capital

Net cash flows

Cost of capital/discount factor

NPV

Supplier BYear01234

Sales250,000300,000350,000450,000

Cost of Goods sold

Raw material usage90000110000170000250000

Electricity200004000050000100000

POL150000200003000040000

Salary expense45000600006500075000

Rent expense20000200002000020000

Dep. Expense????

Cash flow before taxes

Taxes 30%

Cash flow after taxes

Dep. expense????

Capital expenditure ?

Working capital

Net cash flows

Cost of capital/discount factor

NPV

Conduct the cost analysis and suggest which company is better on basis of total cost of ownership using NPV technique