Discuss CIPS L4M7 Exam Topic 2 Question 34

XYZ Inc opens a tender to purchase new forklift trucks for their new established warehouse. In the final round, there are two suppliers remain who offer two different bids. Supplier A's bid has high initial investment. After calculating the net present value, the NPV in year five is positive. On the other hand, supplier B's bid has low purchase price, with the NPV in year five is negative. If the NPV is the sole selection criterion, XYZ Inc should select the bid which has...?

APositive NPV

BThe lowest NPV

CZero NPV

DNegative NPV

Suggested Answer: A

Net present value (NPV) is the 'today' net value that deprives from 'future' cash flow of an invest-ment or a capital purchase. Net Present Value is a helpful tool for assessing the total lifetime value of an investment. Procurement professionals or investors can base on this value to make decision to achieve value for money. Generally, an organisation should select the offer which has the highest NPV among their options. Preferably, the NPV of an capital investment should be positive, which means the investment eventually adds value to the business.

LO 3, AC 3.2

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22 comments · newest first

Arthur 11 months ago

Low price sounds tempting, but negative NPV? No thanks!

Donette 11 months ago

Wait, are we sure the NPV is the only thing that matters?

Laurel 12 months ago

Supplier B's bid is a no-go with that negative NPV.

Alva 12 months ago

But the initial cost is way too high!

Tamekia 1 year ago

Gotta go with Supplier A, positive NPV is the way to go!

Edna 1 year ago

I’m not completely confident, but I think if NPV is the only criterion, we should avoid anything with a negative NPV, so that would mean Supplier A again, right?

Rosalind 1 year ago

This reminds me of a practice question where we had to choose based on NPV too. I believe the correct choice is the one with the positive NPV, which is Supplier A.

Antonette 1 year ago

I'm a bit unsure, but I think we learned that a negative NPV means the project would lose money, so Supplier B should definitely be out of the running.

Letha 1 year ago

I remember that a positive NPV indicates that the investment is expected to generate more cash than it costs, so I think we should go with Supplier A.

Sherell 1 year ago

The key here is to focus on the NPV in year five, since that's the information provided. I'll need to compare the positive NPV of Supplier A's bid to the negative NPV of Supplier B's bid to determine the better option.

Renay 1 year ago

Ugh, NPV calculations are not my strong suit. I'm going to have to review my notes and make sure I understand the concept before attempting this one.

Merilyn 1 year ago

Okay, let me see if I've got this right. We're looking for the bid with the positive NPV, since that's the sole selection criterion, right? I think I can work this out.

Lennie 1 year ago

Hmm, this seems like a tricky one. I'll need to carefully think through the NPV calculations for each supplier to determine which bid has the higher NPV.

Floyd 1 year ago

Okay, let's see. The image shows some kind of log file, so I'll need to analyze the content to figure out what the issue is.

Brock 1 year ago

This seems like a tricky question. I'll need to carefully review the different coexistence modes and how they impact the Skype for Business workloads.

Merlyn 1 year ago

I feel uncertain about whether it's appropriate to conduct inquiries directly or if that could be seen as accusatory...

Renato 2 years ago

True, but the question says to use NPV as the sole criterion. Hence, positive NPV wins.

Julio 2 years ago

But what about the initial costs? Supplier B is cheaper upfront.

Elizabeth 2 years ago

Exactly. So the answer must be A) Positive NPV.

Freida 3 years ago

Agreed. Negative NPV means loss, right?

Jolanda 3 years ago

Yeah, if NPV is positive, it’s financially beneficial.

Renato 3 years ago

I think it's pretty straightforward. Positive NPV means profit.

CIPS L4M7 Exam - Topic 2 Question 34 Discussion