AOL is considering two proposals to overhaul its network infrastructure.
PlayerAOL is considering two proposals to overhaul its network infrastructure. They have received two bids. The first bid from Huawei will require a $22million upfront investment and will generate $20million in savings for AOL each year for the next 3years. The second bid from Cisco requires a $91million upfront investment and will generate $60million in savings each year for the next 3years.a. What is the IRR for AOL associated with each bid?b. If the cost of capital for each investment is 10%,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 $23million upfront, and $35million per year for the next 3years. AOL’s 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 newNPV?e. What should AOL do?
