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New Evolution Corporation is a rapidly growing biotech company that has a required rate of return of 10%. It plans to build a new facility
New Evolution Corporation is a rapidly growing biotech company that has a required rate of return of 10%. It plans to build a new facility in Santa Clara County. The building will take 2 years to complete. The building contractor offered New Evolution a choice of three payment plans, as follows:
Plan I: Payment of $200,000 at the time of signing the contract and $4,750,000 upon completion of the building. The end of the second year is the completion date. | |
Plan II: Payment of $1,650,000 at the time of signing the contract and $1,650,000 at the end of each of the 2 succeeding years. | |
Plan III: Payment of $225,000 at the time of signing the contract and $1,600,000at the end of each of the 3 succeeding years. |
1. | Using the net present value method, calculate the comparative cost of each of the three payment plans being considered byNew Evolution. |
2. | Which payment plan should New Evolution choose? Explain. |
3. | 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
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