Bali Imports Inc. is considering a service contract for its janitorial work. One
ID: 2718039 • Letter: B
Question
Bali Imports Inc. is considering a service contract for its janitorial work. One firm has offered a five-year contract for $180,000, while another firm has offered a seven year contract for $240,000. Bali Imports will be able to save $60,000 per year under either contract because its employees will no longer have to do the work themselves.
a. If Bali Import's cost of capital is 8%, which project should be selected? Show NPV and EAA capital budgeting techniques. Justify your answer using the most appropriate of these techniques.
b. If Bali Import's cost of capital is 6%, does it change the decision?
8.0% ProjectA a) 8 Project B 4 CF NPV n= EAA (PMT) CF4 6% ProjectA Project B NPV n= EAA (PMT) =Explanation / Answer
Bali Imports Inc. is considering a service contract for its janitorial work. One
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