Question:
The purchasing department has found an excellent global positioning system circuit card in Germany that can provide your firm with a competitive advantage in the marketplace. Delivery of the circuit card is 6 months from date of order. The German firm has offered your firm a 3% discount on the 2.5 million (euros) purchase if paid upfront with the order; otherwise, the full 2.5 million (euros) will be payable in 6 months before delivery, providing inflation in Germany does not exceed 2% for the year. If the inflation exceeds 2% for the year, the rate of inflation would be added to the 2.5 million (euros). You will want to find out how inflation has been running after the European Union trade agreement and introduction of the euro and if is likely to increase.
Your supervisor has asked for a recommendation on how Primetime Systems, Inc. should handle the payment and the probable cost of each scenario. You know that your firm's weighted average cost of capital is 8%. Create an Excel spreadsheet detailing the cost of each scenario and embed it into a Word document giving your recommendations.