2 A Construction company is planning to purchase a construction plant as part of its strategic planning. There are two types of plant and the following table presents the initial capital costs, maintenance costs, incomes, lives and re-sale values of the two types. Initial capital cost Maintenance cost Hire income Life of plant Plant 1 5,000,000 50,000 a year for the first 2 years, then increasing by 30,000 per year Plant 2 8,000,000 75,000 per year 1,200,000 a year for the first 2 1,400,000 years, then reducing by 50,000 per year 4 years per year 6 years 6,000,000 Resale value of the plant 3,000,000 Discount to be used in the analysis is 9% a) b) Based on financial appraisal techniques alone, advise the company on what plant to be purchased. (18 marks) What would be your recommendation if there is Plant 3, which involves the following initial capital cost, maintenance cost, income, life span and re-sale value? (6 marks) (o Initial capital cost Maintenance cost Hire income Life of plant Resale value of the plant Plant 3 9.000.000 120,000 a year for the first 4 years. then increasing by 50.000 a year 1,700,000 a year for the first 4 years then reducing 100 000 a year 8 years 6.000.000 Discuss other variables that would affect your calculations above. by (9 marks)