Response:
1. Year One: 20,367 20,017
2. Year Two: 21,333 21,917
3. For NPW analysis, Selected Target is the optimal choice, being the more favorable and cost-effective investment, while EUAM analysis suggests that Walmart's kit is superior.
4. Target emerges as the optimal selection since the cost difference is merely about $600, benefiting from a lifespan of 6 Years, whereas in the case of Walmart, complete furniture replacement is necessary in 3 Years.
Explanation:
1. NPW Analysis
Walmart Kit Target
Initial Cost 40000 65000
AMC 10000 12000
Salvage Value 12000 25000
Lifespan (Years) 3 6
Total Costs
Initial Cost 40000 65000
Less Salvage 12000 25000
Net Amount 28000 40000
5% Interest 6000 19500
AMC Present Value 2.71 5.05
AMC Amount 27100 60600
Total Costs 61100 120100
In Year One 20,367 20,017
2. EUAW Analysis
Walmart Kit
Target
Initial Cost 40000 65000
AMC 10000 12000
Salvage Value 12000 25000
Lifespan (Years) 3 6
Total Costs
Initial Cost 40000 65000
Less Salvage 12000 25000
Net Amount 28000 40000
5% Interest 6000 19500
AMC 30000 72000
Total 64000 131500
In Year Two 21,333 21,917
From NPW analysis, Selected Target proves to be the better choice due to its superior investment value, while EUAM indicates Walmart's kit as the preferable option.
Target stands out as the preferred selection owing to the minimal cost differential of about $600, ensuring a longevity of 6 Years, whilst Walmart's furniture would require complete replacement within 3 Years.
Thus, we would advise management to consider the Target product as the best choice available.
