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)
