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TENDER REPORT TO GOVERNMENT (THE COMPANY IS10)

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Running head: TENDER REPORT TO GOVERNMENT (THE COMPANY IS10) 1
TENDER REPORT TO GOVERNMENT (THE COMPANY IS10)
Name
Institution

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TENDER REPORT TO GOVERNMENT (THE COMPANY IS10) 2
Price and cost assumptions
The following assumption will be considered when comparing different service options:
The services will be offered for a period of five years
There will be no major technological innovations during the evaluation but will be
applied during the entire time of implementation.
Costs incurred during a financial year are discounted at the rate that is applied at the end
of the year.
The service will be offered by a highly trained team by the firm.
The cost of capital will be assumed to be 9.98 percent implying that the total discounted
rate is 9.75 percent.
The discounted rate will be the same for the two options.
Causes of Variation to expectations
Changes in taxes and government legislation.
Increased competition
Market changes due to consumption patterns.
Costs
The following costs will be incurred each year for the five year period:
The capital cost options will be: option A will be $ 100,000 while option B will be
$120,000
The total cost incurred during the period option A will be $10,000 and option B will be
$5,000
The variable cost will be as follows: option A will be $5,600 and option B will be $3,800
Evaluation of the costs will be done excluding data inflation.
The value of discounted dollar rate is 9.95 percent.
The net present value will be utilized in analysis of the two options as follows:
Option A
Initial
values
First year
Second
year
Third year
Fourth
year
Fifth year
maintenance
10,000
10,000
10,000
10,000
10,000
10,000
Variable cost
3,800
3,800
3,800
3,800
3,800
Fixed price
3500
3500
3500
3500
3500
3500
Capital cost
100,000
Discounted
factor
1.0
0.9877
0.9245
0.8245
0.80925
0.80000

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TENDER REPORT TO GOVERNMENT (THE COMPANY IS10) 3
Cash flow
124,750
68,600
68,600
68,600
68,600
48,500
Discounted
cash flow
124,750
42,500
38,320
36,000
34,560
17,500
Total present value is $320,500
Option B
Initial
values
First year
Second
year
Third year
Fourth
year
Fifth year
maintenance
5,000
5,000
5,000
5,000
5,000
5,000
Fixed costs
5,000
5,000
5,000
5,000
5,000
Variable cost
5,600
5,600
5,600
5,600
5,600
Capital cost
120,000
Discounted
factor
1.0
0.9877
0.9245
0.8245
0.80925
0.80000
Cash flow
130,750
63,400
63,400
63,400
63,400
42,200
Discounted
cash flow
130,750
32,500
38,320
36,000
34,560
14,500
Total present value is $275,000
From the calculation option B is preferred because the net present value is lower than that
of option A. The total present value is used for comparing options that have the same life span
such as option A and option B for five years. When the two options have different periods, then
the option with fewer years will be extended. This can be achieved by extension or renewal of
the contract by the client.
Payment terms for clients
Payment terms- cash or commitment positive incase of contract suspension or
termination
Down payments, milestone and progressive payments mechanisms will be used for
triggering payments and last payments. Inflation rates will be 10 percent.
Currency split and hedging issues will be employed in case of suspension or termination
occurs
The insurance policy shall be linked with the general obligations like title and personal
possessions

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