New Engineering Corporation is a rapidly growing biotech company that has a required rate of return of 6%. It plans to build a new facility in Santa Clara County. The building will take 2 years to complete. The building contractor offered New Engineering a choice of three payment plans, as follows: A Requirements Using the net present value method, calculate the comparative cost of each of the three payment plans being considered by New Engineering. Which payment plan should New Engineering choose? Explain. Discuss the financial factors, other than the cost of the plan, and the nonfinancial factors that should be considered in selecting an appropriate payment plan. More Info Plan 1: Payment of $225,000 at the time of signing the contract and $4,600,000 upon completion of the building. The end of the second year is the completion date. Plan II: Payment of $1,675,000 at the time of signing the contract and $1,675,000 at the end of each of the 2 succeeding years. Plan III: Payment of $250,000 at the time of signing the contract and $1,575,000 at the end of each of the 3 succeeding years. Periods Present Value of $1 Periods 2% 0.980 0.961 0.942 0.924 0.906 0.888 0.871 0.853 0.837 0.820 0.804 0.78 0.73 0.758 0.743 0.728 0. 74 0.700 19 0.686 4% 0.962 0.925 0.889 0.855 0.822 0.790 0.760 0.731 0.703 0.676 0.650 0.625 0.601 0.577 0.555 0.534 0.513 0.494 0.475 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.5588 0.527 0.497 0.469 0.442 0.417 0.394 0.371 0.350 0.331 8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 0.315 0.292 0.270 0.250 0.232 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.513 0.467 0.424 0.386 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 12% 0.893 0.797 0.7/12 0.636 0.567 0.507 0.452 0.404 0.361 0.322 0.287 0.257 0.229 0.205 0.183 0.163 0.146 0.130 0.116 14% 0.877 0.769 0.675 0.592 0.519 0.456 0.400 0.351 0.308 0.270 0.237 0.208 0.182 0.160 0.140 0.123 0.108 0.095 0.083 16% 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 0.093 0.080 0.069 0.060 18% 0.847 0.718 0.609 0.516 0.437 0.370 0.314 0.266 0.225 0.191 0.162 0.137 0.116 0.099 0.084 0.071 0.060 0.051 0.043 20% 0.833 0.694 0.579 0.482 0.402 0.335 0.279 0.233 0.194 0.162 0.135 0.112 0.093 0.078 0.065 0.054 0.045 0.038 0.031 22% 0.820 0.672 0.551 0.451 0.370 0.303 0.249 0.204 0.167 0.137 0.112 0.092 0.075 0.062 0.051 0.042 0.034 0.028 0.023 24% 0.806 0.650 0.524 0.423 0.341 0.275 0.222 0.179 0.144 0.116 0.094 0.076 0.061 0.049 0.040 0.032 0.026 0.021 0.017 26% 0.794 0.630 0.500 0.397 0.315 0.250 0.198 0.157 0.125 0.09 0.079 0.062 0.050 0.039 0.031 0.025 0.020 0.016 0.012 28% 0.781 0.610 0.477 0.373 0.291 0.227 0.178 0.139 0.108 0.085 0.066 0.052 0.040 0.032 0.025 0.019 0.015 0.012 0.009 30% 0.769 0.592 0.455 0.350 0.269 0.207 0.159 0.123 0.094 0.073 0.056 0.043 0.033 0.025 0.020 0.015 0.012 0.009 0.007 32% 0.758 0.574 0.435 0.329 0.250 0.189 0.143 0.108 0.082 0.062 0.047 0.036 0.027 0.021 0.016 0.012 0.009 0.007 0.005 40% 0.714 0.510 0.364 0.260 0.186 0.133 0.095 0.068 0.048 0.035 0.025 0.018 0.013 0.009 0.006 0.005 0.003 0.002 0.002 456789BH28B 17 18 19 U.DOU 0.47 U.JUTU .232 U. 104 U.TIU U.UOS U.UUUU.U43U.UJIU.U23 U.UNTU. UZ U.UUYU.UUTU.UUUU. UZ 24 24 0.673 0.660 0.647 0.634 0.622 0.610 0.598 0.586 0.574 0.563 0.456 0.312 0.215 0.149 0.4390.294 0.1990.135 0.422 0.278 0.184 0.123 0.4060.262 0.170 0.112 0.390 0.247 0.158 0.102 0.375 0.233 0.146 0.092 0.361 0.220 0.135 0.084 0.347 0.207 0.125 0.076 0.333 0.196 0.116 0.069 0.3210.185 0.107 0.063 0.308 0.1740.099 0.057 0.253 0.130 0.068 0.036 0.208 0.097 0.046 0.022 0.104 0.093 0.083 0.074 0.066 0.059 0.053 0.047 0.042 0.037 0.033 0.019 0.011 26 0.073 0.064 0.056 0.049 0.043 0.038 0.033 0.029 0.026 0.022 0.020 0.010 0.005 0.051 0.044 0.038 0.033 0.028 0.024 0.021 0.018 0.016 0.014 0.012 0.006 0.003 0.037 0.026 0.019 0.031 0.022 0.015 0.026 0.018 0.013 0.022 0.015 0.010 0.019 0.013 0.008 0.016 0.010 0.007 0.014 0.009 0.006 0.0110.007 0.005 0.010 0.006 0.004 0.008 0.005 0.003 0.007 0.0040.003 0.003 0.002 0.001 0.001 0.001 0.000 0.014 0.010 0.0110.008 0.009 0.006 0.007 0.005 0.006 0.004 0.005 0.003 0.004 0.002 0.003 0.002 0.002 0.002 0.002 0.001 0.002 0.001 0.001 0.000 0.000 0.000 0.007 0.005 0.006 0.004 0.004 0.003 0.003 0.002 0.003 0.002 0.002 0.001 0.002 0.001 0.001 0.001 0.001 0.001 0.001 0.000 0.0010 0.000 0.000 0.000 0.000 0.004 0.003 0.002 0.002 0.001 0.001 0.001 0.001 0.000 0.000 0.001 0.001 0.001 0.000 0.000 0.000 0.000 0.000 0.000 0.000 28 29 0.500 0.453 0.000 0.000 0.000 0.000 Periods Present Value of Annuity of $1.00 in Arrears* Periods 2% 4% 6% 8% 0.980 0.962 0.943 0.926 1.942 1.886 1.833 1.783 2.884 2.7752.673 2.577 3.808 3.6303.465 3.312 4.713 4.4524.212 3.993 5.601 5.2424.917 4.623 6.472 6.0025.5825.206 7.325 6.7336.210 5.747 8.162 7.435 6.802 6.247 8.983 8.1117.360 6.710 9.787 8.760 7.887 7.139 10.575 9.3858.384 7.536 11.348 9.986 8.853 7.904 12.106 10.563 9.295 8.244 12.849 11.118 9.712 8.559 13.578 11.652 10.106 8.851 14.292 12.166 10.477 9.122 14.992 12.659 10.828 9.372 15.678 13.134 11.158 9.604 10% 12% 14% 0.909 0.893 0.877 1.736 1.690 1.647 2.487 2.402 2.322 3.1703.037 2.914 3.791 3.605 3.433 4.355 4.111 3.889 4.868 4.564 4.288 5.335 4.968 4.639 5.759 5.328 4.946 6.145 5.6505.216 6.495 5.938 5.453 6.814 6.194 5.660 7.103 6.424 5.842 7.367 6.628 6.002 7.606 6.811 6.142 7.824 6.974 6.265 8.022 7.120 6.373 8.2017.250 6.467 8.365 7.366 6.550 16% 18% 0.862 0.847 1.605 1.566 2.246 2.174 2.798 2.690 3.274 3.127 3.685 3.498 4.0393.812 4.344 4.078 4.607 4.303 4.833 4.494 5.029 4.656 5.197 4.793 5.342 4.910 5.468 5.008 5.575 5.092 5.668 5.162 5.749 5.222 5.818 5.273 5.877 5.316 20% 22% 0.833 0.820 1.528 1.492 2.106 2.042 2.5892.494 2.991 2.864 3.326 3.167 3.605 3.416 3.837 3.619 4.031 3.786 4.192 3.923 4.327 4.035 4.4394.127 4.533 4.203 4.611 4.265 4.675 4.315 4.730 4.357 4.775 4.391 4.812 4.419 4.843 4.442 24% 0.806 1.457 1.981 2.404 2.745 3.020 3.242 3.421 3.566 3.682 3.776 3.851 3.912 3.962 4.001 4.033 4.059 4.080 4.097 26% 0.794 1.424 1.923 2.320 2.635 2.885 3.083 3.241 3.366 3.465 3.543 3.606 3.656 3.695 3.726 3.751 3.771 3.786 3.799 28% 30% 32% 0.781 0.769 0.758 1.392 1.361 1.331 1.868 1.816 1.766 2.241 2.166 2.096 2.532 2.436 2.345 2.759 2.643 2.534 2.937 2.802 2.677 3.076 2.925 2.786 3.184 3.019 2.868 3.269 3.092 2.930 3.335 3.147 2.978 3.387 3.190 3.013 3.427 3.223 3.040 3.459 3.2493.061 3.483 3.268 3.076 3.503 3.283 3.088 3.518 3.295 3.097 3.5293.304 3.104 3.539 3.311 3.109 40% 0.714 1.224 1.589 1.849 2.035 2.168 2.263 2.331 2.379 2.414 2.438 2.456 2.469 2.478 2.484 2.489 2.492 2.494 2.496 18 26 16.351 13.590 11.470 9.818 8.514 7.4696.623 17.011 14.029 11.764 10.017 8.6497.562 6.687 17.658 14.451 12.042 10.201 8.772 7.645 6.743 18.292 14.857 12.303 10.371 8.883 7.718 6.792 24 18.914 15.247 12.550 10.529 8.985 7.784 6.835 25 19.523 15.622 12.783 10.675 9.077 7.8436.873 20.121 15.983 13.003 10.810 9.161 7.896 6.906 20.707 16.330 13.211 10.935 9.237 7.943 6.935 28 21.281 16.663 13.406 11.051 9.307 7.984 6.961 29 21.844 16.984 13.591 11.158 9.370 8.022 6.983 30 22.396 17.292 13.765 11.258 9.427 8.055 7.003 24.999 18.665 14.498 11.655 9.644 8.176 7.070 40 27.355 19.793 15.046 11.925 9.7798.244 7.105 * Payments (or receipts) at the end of each period. 5.9295.353 4.870 4.460 5.973 5.384 4.891 4.476 6.0115.410 4.909 4.488 6.044 5.432 4.925 4.499 6.073 5.451 4.937 4.507 6.097 5.467 4.948 4.514 6.118 5.480 4.956 4.520 6.136 5.492 4.964 4.524 6.152 5.502 4.970 4.528 6.166 5.510 4.975 4.531 6.177 5.517 4.9794.534 6.215 5.5394.992 4.541 6.233 5.548 4.997 4.544 4.110 3.808 4.121 3.816 4.130 3.822 4.137 3.827 4.143 3.831 4.147 3.834 4.151 3.837 4.154 3.839 4.157 3.840 4.1593.841 4.160 3.842 4.164 3.845 4.166 3.846 3.546 3.551 3.556 3.559 3.562 3.564 3.566 3.567 3.568 3.569 3.569 3.571 3.571 3.316 3.320 3.323 3.325 3.327 3.329 3.330 3.331 3.331 3.332 3.332 3.333 3.333 3.113 3.116 3.118 3.120 3.121 3.122 3.123 3.123 3.124 3.124 3.124 3.125 3.125 2.497 2.498 2.498 2.499 2.499 2.499 2.500 2.500 2.500 2.500 2.500 2.500 2.500 27 35 Periods Compound Amount of $1.00 (The Future Value of $1.00) Periods 2% 4% 6% 8% 10% 12% 14% 1.020 1.040 1.060 1.080 1.100 1.120 1.140 1.040 1.082 1.124 1.166 1.210 1.2541.300 1.061 1.125 1.191 1.260 1.331 1.405 1.482 1.082 1.1701.262 1.360 1.464 1.574 1.689 1.104 1.217 1.338 1.469 1.611 1.762 1.925 1.126 1.265 1.419 1.587 1.772 1.974 2.195 1.149 1.316 1.504 1.714 1.949 2.211 2.502 1.172 1.369 1.594 1.851 2.144 2.476 2.853 1.195 1.423 1.689 1.999 2.358 2.773 3.252 1.219 1.480 1.791 2.159 2.594 3.106 3.707 1.243 1.539 1.898 2.332 2.853 3.479 4.226 1.268 1.601 2.012 2.518 3.138 3.896 4.818 13 1.294 1.665 2.133 2.720 3.452 4.363 5.492 14 1.319 1.732 2.261 2.937 3.797 4.887 6.261 1.346 1.801 2.397 3.172 4.177 5.474 7.138 16 1.373 1.873 2.540 3.426 4.595 6.130 8.137 17 1.400 1.948 2.693 3.700 5.054 6.866 9.276 18 1.428 2.026 2.854 3.996 5.560 7.690 10.575 1.457 2.107 3.026 4.316 6.116 8.613 12.056 16% 1.160 1.346 1.561 1.811 2.100 2.436 2.826 3.278 3.803 4.411 5.117 5.936 6.886 7.988 9.266 10.748 12.468 14.463 16.777 18% 1.180 1.392 1.643 1.939 2.288 2.700 3.185 3.759 4.435 5.234 6.176 7.288 8.599 10.147 11.974 14.129 16.672 19.673 23.214 20% 1.200 1.440 1.728 2.074 2.488 2.986 3.583 4.300 5.160 6.192 7.430 8.916 10.699 12.839 15.407 18.488 22.186 26.623 31.948 22% 1.220 1.488 1.816 2.215 2.703 3.297 4.023 4.908 5.987 7.305 8.912 10.872 13.264 16.182 19.742 24.086 29.384 35.849 43.736 24% 1.240 1.538 1.907 2.364 2.932 3.635 4.508 5.590 6.931 8.594 10.657 13.215 16.386 20.319 25.196 31.243 38.741 26% 1.260 1.588 2.000 2.520 3.176 4.002 5.042 6.353 8.005 10.086 12.708 16.012 20.175 25.421 32.030 40.358 50.851 64.072 80.731 28% 1.280 1.638 2.097 2.684 3.436 4.398 5.629 7.206 9.223 11.806 15.112 19.343 24.759 31.691 40.565 51.923 66.461 85.071 108.890 30% 1.300 1.690 2.197 2.856 3.713 4.827 6.275 8.157 10.604 13.786 17.922 23.298 30.288 39.374 51.186 66.542 86.504 112.455 146.192 32% 1.320 1.742 2.300 3.036 4.007 5.290 6.983 9.217 12.166 16.060 21.199 27.983 36.937 48.757 64.359 84.954 112.139 148.024 195.391 40% 1.400 1.960 2.744 3.842 5.378 7.530 10.541 14.758 20.661 28.925 40.496 56.694 79.371 111.120 155.568 217.795 304.913 426.879 597.630 NOVAWN + 12 15 59.568 11.486 2.191 3.207 4.661 6.727 9.646 13.743 19.461 27.393 38.338 53.358 73.864 101.721 13.380 190.050 257.9168 36.683 1.516 2.279 3.400 5.034 7.400 10.804 15.666 22.574 32.324 46.005 65.096 91.592 128.169 178.406 247.065 340.449 1171.356 1.546 2.370 3.604 5.437 8.140 12.100 17.861 26.186 38.142 55.206 79.418 113.574 | 161.492 228.360 321.184 | 449.393 1639.898 1.577 2.465 3.820 5.871 8.954 13.552 20.362 30.376 45.008 66.247 96.889 140.831 203.480 292.300 417.539 593.19 2295.857 1.608 2.563 4.049 6.3419.850 15.179 23.212 35.236 53.109 79.497118.205 174,631 256.385 374.144 542.801 783.0233214.200 1.641 2.666 4.292 6.848 10.835 17.000 26.462 40.874 62.669 95.396 144.210 216.542 323.045 478.905 1705.641 | 1033.590 4499.880 1.673 12.772 4.549 7.396 11.918 19.040 30.167 47.414 73.949 114.475 175.936 268.512 407.037 407.037612.998917.333134 339 1.7072883 4.8227988 13.110 21.325 34,390 55.000 87 260 137.371214.642 332.955 52.86774.638192.533 1800 9278819.764 1.741 2.999 5.112 8.627 14.421 23.884 39.204 63.800 102.967 164.845 261.864 412.864 646.212 1004.336 1550.293 2377.224 12347.670 1.776 3.119 5.418 9.317 15.863 26.750 44.693 74.009 121.501 197.814 319.474 511.952 814.228 1285.550 2015.381 3137.935 17286.737 1.811 3.243 5.743 10.063 17.449 29.960 50.950 85.850 143.371 237.376 389.758 634.820 1025.927 1645.505 2619.996 4142.075 24201.432 2.000 3.946 7.686 14.785 28.102 52.800 98.100 180.314 327.997 590.668 1053.402 1861.054 3258.135 5653.911 9727.860 16599.217 130161.112 12.208 4.801 10.286 21.725 45.259 93.051 188.884 378.721 750.378 1469.772 2847.038 5455.913 10347.175 19426.689 36118.865 66520.767 700037.697 27 ]Per 8 . 977_ 11 . 414 Compound Amount of Annuity of $1.00 in Arrears* (Future Value of Annuity) Periods/26 14 16% |_8%1 10%1 12%1 14 116% 116% | 20% | 18 | 20M 1 22 [ 2461 1.0001.0001.0001.0001.0001.0001.000 1.000 1000 1.000 1.000 1.000 2.0202.0402.06020802.1002.120 2140 2.160 .2.180 2200 2220 2240 3.060 3.122 3.184 3.2463,3103.374 3.4403.506 3.572 3.640 3.708 3.778 4.1224 .246 4.375 4.5064.641 4,921 5.066 5.215 5.368 5.524 5.684 5.204_5.416_5.637 _5.857 _6.105 _6.353 _6.610 6.877 7.154 7,442 7:740 8.048 6.308_6.633_6.975 1.33611168.115 _8.536 9.442 9.930 10.442 10.980 7,4347.898_8.394 _8.923 _9.487 10.089_10.730 12.142 12916 13.740 14.615 _8.5839.214 _9.897 10.637_11.436_12.300 13.23314.240 15.327 16.499 17762 19.123 9,755 10.583_11.49112.488 13.579 14.176 16.08517.519 19.086 20,799 22.670 24.112 10.950 12.006 13.181 14.487_15.937 17.549_19.33721.321 23.521 25.959 28.657 31.643 1112169 13.486 14:972 16.64518531 20.65523.045 25.733 28,75532.150 35.962 40238 12 13.412 15:026 16.870 18.97721.384 30.850_ 34.931 39.581 44.874 50.895 13 14.680 16.527 18,882 21,495 2453 28:029 36.786 42.219 48.497 55.746 64:110 15.974 18.292 21.015_24.215 27.975 32.393_37.581 43.672 _50.81859.196 _69.010 80.496 17.293 20.024_2327627.152_31772 37.280 43.842_51.660_6096572.035 _85.192 100.815 18.639 21.825 25.673_30.324 35:950 42753_50.980_60.92572939_87.442104.935 _126.011 17 20.012 23.698 28.213 33.750 40.545 48.884_59.11871.673_87.068 105.931 129.020157253 18 21.412 25.645 30.906 37.450 45.599 55:750_68.39484.141 103.?40_128.117 _158.405 _195.994 19_22.841 27.671_33.z60 41.446_51.159_63.440_18.96998.603 123.414 154740-194.254 _244.033 259 1.000 2260 3.848 5.848 8.368 11:544 15.546 20.588 26.940 34.945 45.031 57.739 73.751 93.926 119.347 151.377 191.735 242.585 _306.658 28 ] 1.000 2280 3.918 _6.016 8:700 12.136 16.534 22.163 29.369 38.593 50.398 65.510 84.853 109.612 141.303 181.868_ 233.791 300.252 _385.323 30% 1.000 2300 3.990 6.187 9.043 12.756 17.583 23.858 32.015 42.619 56.405 74.327 97.625 127.913 167286 218.472 285.014 3 71.518 483.973 32 1.000 2320 4.062 6.362 9.398 13.406 18.696 25.678 34.895 47.062 63. 122 84.320 112.303 149.240 197.997 262356 347.309 459.449 _607.472 40% 1.000 2.400 4.360 7.104 10.946 16.324 23.853 34.395 49.153 69.814 98.739 139.235 195.929 275.300 386.420 541988 759.784 1064.697 10 16 1491 . 576 24.297 29.778 36.786 45.762 57.275 72.052 91.025 115.380 146.628 186.688 237.989 303.601 387.389 494.213 630.165 802.863 2089.206 25.783 31.969 39.993 50.423 64.002 81.699 104.768 134.841 174.021 225.026 291.347 377.465 489.110 633.593 820.215 1060.779 2925.889 27.299 34.248 43.392 55.457 71.403 92.503 120.436 157.415 206.345 271.031 356.443 469.056 617.278 811.999 1067.280 1401.229 4097.245 28.845 36.618 46.996 60.893 79.543 104.603 138.297 183.601 244.487 326.237 435.861 582.630 778.771 1040.358 1388.464 1850.622 5737.142 30.422 39.083 50.816 66.765 88.497 118.155 158.659 213.978 289.494 392.484 532.750 723.461 982.251 1332.659 1806.003 2443.821 8032.999 32.030 41.646 54.865 73.106 98.347 133.334 181.871 249.214 342.603 471.981 650.955 898.092 1238.636 1706.803 2348.803 3226.844 11247.199 33.671 44.312 59.156 79.954 109.182 150.334 208.333 290.088 405.272 567.377 795.165 1114.634 1561.682 2185.708 3054.444 4260.434 15747.079 35.344 47.084 63.706 87.351 121.100 169.374 238.499 337.502 479.221 681.853 971.102 1383.146 1968.719 2798.706 3971.778 5624.772 22046.910 37.051 49.968 68.528 95.339 134.210 190.699 272.889 392.503 566.481 819.223 1185.744 1716.101 2481.586 3583.344 5164.311 7425.699 30866.674 38.792 52.966 73.640 103.966 148.631 214.583 312.094 456.303 669.447 984.068 1447.608 2128.965 3127.798 4587.680 6714.604 9802.923 43214.343 30 40.568 56.085 79.058 113.283 164.494 241.333 356.787 530.312 790.948 1181.882 1767.081 2640.916 3942.026 5873.231 8729.985 12940.859 60501.081 49.994 73.652 111.435 172.317 271.024 431.663 693.573 1120.713 1816.652 2948.341 4783.645 7750.225 12527.442 20188.966 32422.868 51869.427 325400.279 40 60.402 95.026 154.762 259.057 442.593 767.091 1342.025 2360.757 4163.213 7343.858 12936.535 22728.803 39792.982 69377.460 120392.883 207874.272 1750091.741 * Payments (or receipts) at the end of each period. AWWNNNNNNNNNN 29