Creekside Cement Ltd is considering purchasing a new cement-mixing truck. The supplier of trucks, Sea Meant Trucks

Question:

Creekside Cement Ltd is considering purchasing a new cement-mixing truck. The supplier of trucks, Sea Meant Trucks Ltd, sells its trucks for $350000 cash or customers can purchase them by paying annual instalments of $60000 per year over 10 years at a discount rate of 10%.

Di Shonest is the chief financial officer for Creekside Cement Ltd and her husband, Barry, works for the Loans & Savings Bank. Barry earns a 0.1% commission on any loans he makes. Barry has told Di that he can organise a loan for Creekside Cement Ltd to purchase the cement mixing truck with repayments of only $52000 per year. This loan will be over 15 years with a discount rate of 12%.

Creekside Cement Ltd is experiencing some cash flow problems at the moment so it cannot afford to pay cash for a new cement truck, though it could afford annual payments of $60000. Di has done all the relevant calculations and recommends to the board that Creekside Cement Ltd should borrow the $350000 from the Loans & Savings Bank on the terms Barry suggested.

Required

A. Calculate the present value of the three finance options available to Creekside Cement Ltd.

B. Who are the stakeholders involved in the machine purchase decision?

C. What are the ethical issues, if any, involved?

Stakeholders
A person, group or organization that has interest or concern in an organization. Stakeholders can affect or be affected by the organization's actions, objectives and policies. Some examples of key stakeholders are creditors, directors, employees,... Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...

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