## (Solved) LONGHORN INC. a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process.

LONGHORN INC. a manufacturer of steel school lockers, plans to purchase a new punch press for use in its manufacturing process. After contacting the appropriate vendors, the purchasing department received differing terms and options from each vendor. The Engineering Department has determined that each vendorâ€™s punch press is substantially identical and each has a useful life ofÂ 20Â years. In addition, Engineering has estimated that required year-end maintenance costs will be \$900Â per year for the firstÂ 5Â years, \$1,900Â per year for the nextÂ 10Â years, and \$2,900Â per year for the lastÂ 5Â years. Following is each vendorâ€™s sales package.

Vendor A:\$57,710Â cash at time of delivery andÂ 10Â year-end payments of \$17,430Â each. Vendor A offers all its customers the right to purchase at the time of sale a separateÂ 20-year maintenance service contract, under which Vendor A will perform all year-end maintenance at a one-time initial cost of \$10,510.

Vendor B:Forty semiannual payments of \$10,100Â each, with the first installment due upon delivery. Vendor B will perform all year-end maintenance for the nextÂ 20Â years at no extra charge.

Vendor C:Full cash price of \$158,200Â will be due upon delivery.

Assuming that both Vendors A and B will be able to perform the required year-end maintenance, that Sheridanâ€™s cost of funds isÂ 10%, and the machine will be purchased on January 1, compute the following:

The present value of the cash flows for for option A =

The present value of the cash flows for for option B =

The present value of the cash flows for for option C =

Which vendor should I purchase the press from?Â

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