AOL is considering two proposals to overhaul its network infrastructure. They ha
ID: 2730152 • Letter: A
Question
AOL is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid from Huawei will require a $21 million upfront investment and will generate $20 million in savings for AOL. Each year for the next 3 years. The second bid from CIsco requires a $81 million upfront investment and will generate $60 million in savings each year for the next 3 years. (a). what is the IRR for AOL associated with each bid? (b).If the cost for each investment is 14%,what is the net present value (NVP) of each bid? Suppose Cisco modifies its bid by offering a lease contract instead. Under the terms of the lease,AOL will pay $27 million upfront, and $35 million per year for the next 3 years.AOL's savings will be the same as with Cisco's original bid. (c).What is the IRR of the Cisco bid now? (d).What is the new NPV? (e). What should AOL do?
Explanation / Answer
Answer:(a)
Answer:(b)
Answer:(c)
Answer:(d) NPV:
Answer:(e) invest
Year First Bid Second Bid 0 -21 -81 1 20 60 2 20 60 3 20 60 IRR 78% 54%Related Questions
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