Question
Kwan Corp. has contracted with Lee Contractors to build a new building. The building is scheduled for completion in two years. Lee has given Kwan
Kwan Corp. has contracted with Lee Contractors to build a new building. The building is scheduled for completion in two years. Lee has given Kwan one of three payment options: Option #1 - Pay $2,100,000 immediately. Option #2 - Pay $1,100,000 at the end of each year for the next two years. Option #3 - Pay $2,500,000 at the end of the two year period. Assume that both Lee and Kwan use a 12% discount rate in making investment decisions. Required: (1) Which investment option should Kwan choose? (2) What payment option would Lee like for Kwan to choose?
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