Harrys hair care manufacturing PTY Ltd is a for-profit company which produces a range of different hair care products shipping these directly to hair care retail stores all across Australia. Harry has a required rate of return of 14%. It plans to build a new factory outlet in Sydney. It will take two years to complete building this outlet. The contractor in charge of building this outlet, offered Harry a choice of two payment plans, as follows:

Plan A. Payment of $87 500 at the time of signing the contract and $2 350 000 upon completion. The end of the second year is the completion date.

Plan B. Payment of $812 500 at the time of signing the contract and $812 500 at the end of each of the two succeeding years.

Required:

1. Using the net present value method, calculate the comparative cost of each of the two payment plans being considered by Harry.

2. Which payment plan should Harry choose in terms of financial factors? Explain.

3. Discuss the non-financial factors that should be considered in selecting an appropriate payment plan.