Answer the following Questions Under Huawei and Cisco Proposal for AOL

timer Asked: Mar 2nd, 2014

Question description

4. AOL is considering two proposals to overhaul its network infrastructure . They have received two bids. The first bid from Huawei will require a $ 19 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 of capital for each investment is 10%, what is the Net Present Value(NPV) of each bid?_______ Suppose Cisco modifies its bid by offering a lease contract instead. Under the terms of the lease, AOL will pay $21 million upfront, ad $35 million per year for the next 3 years. AOL 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?_____

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