Instructions:

Analyse the following case study and choose the most optimal investment cum financing option.

Township Motors Company is a franchisee dealership employing about $60$ people in a town of $450,000$ in Western Kenya. In early $2023,$ W$.$B$.$ Charo, the Chief Executive Officer $($CEO$),$ was con$$sidering a proposal for a new body shop facility. An opportunity to buy a suitable piece of land near the dealership had just come to Charo$$s attention, and he decided it was time to carefully consider making a major investment in a body shop. On the basis of prior negotiations with the vehicle manufacturer, Charo was sure that the manufacturer would not provide financing or active support for the new venture. If construction began in the next few weeks, the shop could open in January $2024.$

The current body shop at Company was in a leased building located about one ki$$lometre from the dealership. This building provided room for five metal working stalls. Two preparation stalls and a small paint booth were located in the mechanical repair area of the main dealership. There was very little storage space, at the body shop location, either for parts and supplies or for damaged vehicles. The lease payments were shs $68,000$ per month, and did not include heat, light, insurance and business tax. Eight men plus a foreman were employed at the body shop.

The old body shop was usually quite busy. Body shop sales in $2023$ were running at just under sh $340,000,000$ annually, with an almost $60\%$ gross and a net earnings after tax of sh $5,100,000.$ The rate of turnover of staff was quite high.

Competition for body shop business in the dealership$$s trading area came primarily from another franchised dealer with a $20-$stall facility. Three other dealers ran small shops but were not particularly aggressive in soliciting business. In addition, there was a variety of small inde$$pendent shops operating in the area.

The new body shop proposal had been developed by Charo and his body shop foreman with the help of a local building contractor. Charo was toying with the idea of attempting to change the public image of the body shop business, at least with respect to his own dealership. As a result, the new proposal involved some significant innovations to current body shop facil$$ity designs. These changes were planned to create a cleaner, more comfortable and more pleasant environment for both the staff and the customers. Specifically, the proposal included $/$ a carpeted, well$-$decorated reception area for customers, complete with washroom facilities, a fully equipped office for use by insurance adjusters, a heated appraisal area, locker and lunch room facilities with modern washroom and showers for employees, hot and cold water to$$gether with air lines in every stall and an efficient air control system in the building to reduce dust levels for both the benefit of employees and to ensure top quality paint work. The paint$$ing area would be separated from the metal working area by a fire wall, and included a paint booth large enough to accommodate the largest trucks as well as a conventional drying oven for cars. An under$-$the$-$floor frame$-$straightening apparatus would be available in six of the metal working stalls. These features were not without their price tag, and Charo was aware that their inclusion in the proposal raised the estimated cost considerably.

Charo and his foreman believed that sufficient business could be attracted to a really good facility to keep $20$ stalls busy, seven of which would be in the paint section. A total of almost $1400$ square metres would be required to provide this working space with parts storage and the other features described earlier. The land, which was currently available was priced at sh $17,000,000$ for $0\mathrm{.}5$ hectares, and the contractor estimated that the building would cost about sh $73,000$ per square metre to construct or a total of sh$\mathrm{.}102,000,000.$ Equipment for the building, in$-$cluding rails in the floor for frame straightening, wiring, fencing, and a road sign, would cost about sh $8,500,000.$ The new truck booth and an air compressor for the entire shop would cost an additional sh $25,500,000.$ The capital cost $($wear and tear$)$ allowance rates for tax purposes were $5\%$ for the building and $20\%$ for the equipment expenditures of sh$.34,000,000$;$.$ The corporate tax rate was $30$ percent. Incremental working capital would be negligible.

The hourly labour charge for the body shop work was sh$.5,400.$ Wage and benefit costs were sh $2,460$ per hour. Parts and supply sales averaged sh$\mathrm{.}75$ for every shillings of labour charged and earned a contribution of $27\%.$ Consequently, the total gross revenue per labour hour charged was estimated at sh $9,450($sh $5,400$ labour plus $0\mathrm{.}75$ of $5,400$ or sh $4,050$ parts and supplies$).$ The variable costs per labour hour were sh$\mathrm{.}5,417($sh$\mathrm{.}2,460$ hourly labour costs plus $0\mathrm{.}73$ of sh $4,050$ or sh$\mathrm{.}2,957$ parts and supply costs$).$ In addition, the following annual cash expenses were anticipated:

Supervision