Provide a better offer with the comparison methods

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Reference no: EM133264436

Question 1.
Ontario Corporation is planning to outsource its maintenance operation. Two different companies provide maintenance services and their pricing offers are as follows: For both options, the initial payment is at the beginning of the contract, and the contract duration for company 1 is 6 years where for company 2 is 4 years.

Company 1) Initial payment of $18,000, and $2,200/month for the first two years, then payment increases to $4000 at the first month of year 3 and then will be increased by $50 each month up to month 36 (end of year 3). There will be a one-time payment of $7000 at the end of year 3 as well. For the last 3 years (month 37 up to 72), the monthly payment will be constant at $5,000.

Company 2) Initial payment of $7,000, and $3,200/month for the first 3 years (month 1 up to 36), then starting year 4 (month 37) the monthly payment is $3,500 at month 37 and it will be increased by 6% per month from the second month of year 4 to the end of year 4. Considering that the interest rate is 12% per year compounded monthly, which company provides a better offer with the following comparison methods?

a. Present worth method
b. Future worth method
c. Annual worth method

Reference no: EM133264436

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