How much should be willing to pay for emc service

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Assume that a principal equipment supplier has approached Braden Company, a producer of plastic toys, with an intriguing offer for a service contract. The supplier, the Extruding Machines Corporation (EMC), offers to take over all of Braden's equipment repair and servicing for five years in exchange for a one-time payment today. Braden's managers know that their company spends £7,000 on maintenance at the end of every year so EMC's service contract would reduce Braden's cash outflows by this £7,000 annually for five years.

Problem 1: If Braden requires a minimum return of 8% on all is investments, how much should it be willing to pay for EMC's service contract today?

Reference no: EM132669065

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