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Corporate Finance

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Question;AOL is considering two proposals to overhaul it network infrastucture. They have recieved two bids. The first bid from Huawei will require a $17 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 $93 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 19% 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 $30million upfront and $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?

 

Paper#49401 | Written in 18-Jul-2015

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