CIPS Exam L4M7 Topic 2 Question 34 Discussion

Actual exam question for CIPS's L4M7 exam

Question #: 34
Topic #: 2

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

Show Suggested Answer

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

by Phil at May 09, 2024, 12:19 PM

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7 months ago

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

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