Using the net present value method, calculate the comparative cost of each of the three payment plans being considered by New Tech. 2. Which payment plan should New Tech 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.
Using the net present value method, calculate the comparative cost of each of the three payment plans being considered by New Tech. 2. Which payment plan should New Tech 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.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
New Tech Corporation is a rapidly growing biotech company that has a required
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 Tech a choice of three payment plans, as follows:
More Info
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Plan I: Payment of $225,000 at the time of signing the contract and $4,800,000 upon completion of the building. The end of the second year is the completion date. |
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Plan II: Payment of $1,800,000 at the time of signing the contract and $1,800,000 at the end of each of the 2 succeeding years. |
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Plan III: Payment of $250,000 at the time of signing the contract and $1,500,000 at the end of each of the 3 succeeding years. |
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1. |
Using the |
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2. |
Which payment plan should New Tech 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. |
Transcribed Image Text:Present Value of Annuity of S1.00 in Arrears*
Periods
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
0.758
40%
Periods
Period 1 0.980
0.062
0.043
0.020
0.909
0.893
0.877
0.862
0.847
0.833
0.820
0.806
0.794
0.781
0.769
0.714
Period 1
Period 2
1.942
1.886
1.833
1.783
1.736
1.690
1.647
1.605
1.566
1.528
1.492
1.457
1.424
1.392
1.361
1.331
1.224
Period 2
Period 3 2.884
2.775
2.673
2.577
2.487
2.402
2.322
2.248
2.174
2.108
2.042
1.981
1.923
1.868
1.816
1.766
1.589
Period 3
Period 4 3.808
3.630
3.465
3.312
3.170
3.037
2.014
2.708
2.600
2.589
2.494
2.404
2.320
2.241
2.166
2.096
1.849
Period 4
2.864
3.167
Period 5
4.713
4.452
4.212
3.993
3.701
3.605
3.433
3.274
3.127
2.991
2.745
2.635
2.532
2.436
2.345
2.035
Period 5
Period 6 5.601
5.242
4.017
4.623
4.355
4.111
3.889
3.685
3.498
3.326
3.605
3.020
2.885
2.759
2.643
2.534
2.168
Period 6
Period 7 6.472
6.002
5.582
5.208
4.868
4.564
4.288
4.039
3.812
3.416
3.242
3.083
2.937
2.802
2.677
2.263
2.331
Period 7
Period 8 7.325
6.733
6.210
5.747
5.335
4.968
4.639
4.344
4.078
3.837
3.619
3.421
3.241
3.076
2.925
2.786
Period 8
Period 9 8.162
7.435
6.802
6.247
5.759
5.328
4.948
4.607
4.303
4.031
3.786
3.566
3.366
3.184
3.019
2.868
2.379
Period 9
7.360
6.145
5.210
5.453
Period 10 8.983
8.111
6.710
5.650
4.833
4.494
4.192
3.923
3.682
3.465
3.269
3.092
2.930
2.414 Period 10
Period 11 9.787
8.760
7.887
7.139
6.495
5.038
5.029
4.656
4.327
4.035
3.776
3.543
3.335
3.147
2.978
2.438 Period 11
Period 12 10.575 9.385
8.384
7.536
6.814
6.194
5.660
5.197
4.793
4.439
4.127
3.851
3.608
3.387
3.190
3.013
2.456 Period 12
Period 13 11.348
9.086
8.853
7.904
7.103
6.424
5.842
5.342
4.910
4.533
4.203
3.912
3.656
3.427
3.223
3.040
2.469 Period 13
Period 14 12.106 10.563
9.295
8.244
7.367
6.628
6.002
5.468
5.008
4.611
4.265
3.962
3.695
3.459
3.249
3.061
2.478 Period 14
4.315
4.357
Period 15 12.849
11.118
9.712
8.559
7.606
6.811
6.142
5.575
5.092
4.675
4.001
3.726
3.483
3.268
3.283
3.076
2.484 Period 15
Period 16 13.578
11.652
10.106
8.851
7.824
6.974
6.265
5.668
5.162
4.730
4.033
3.751
3.503
3.088
2.489 Period 16
Period 17 14.292 12.166
10.477
9.122
8.022
7.120
6.373
5.749
5.222
4.775
4.391
4.050
3.771
3.518
3.295
3.097
2.492 Period 17
Period 18 14.992 12.659
10.828
9.372
8.201
7.250
6.467
5.818
5.273
4.812
4.419
4.080
3.786
3.529
3.304
3.104
2.494 Period 18
Period 19 15.678 13.134
11.158
9.604
8.365
7.366
6.550
5.877
5.318
4.843
4.442
4.007
3.799
3.539
3.311
3.109
2.496 Period 19
Period 20 16.351
5.920
3.808
2.497 Period 20
13.590
14.029
11.470
9.818
8.514
7.489
6.623
5.353
4.870
4.460
4.110
3.546
3.316
3.113
Period 21 17.011
11.764
10.017
8.649
7.502
6.687
5.973
5.384
4.891
4.476
4.121
3.816
3.551
3.320
3.118
2.498 Period 21
Period 22 17.658 14.451
12.042 10.201
8.772
7.645
6.743
6.011
5.410
4.900
4.488
4.130
3.822
3.556
3.323
3.118
2.498 Period 22
3.325
3.327
Period 23 18.292 14.857
12.303 10.371
8.883
7.718
6.702
6.044
5.432
4.925
4.499
4.137
3.827
3.559
3.120
2.499 Period 23
Period 24 18.914 15.247
12.550
10.529
8.985
7.784
6.835
6.073
5.451
4.937
4.507
4.143
3.831
3.562
3.121
2.499 Period 24
Period 25 19.523 15.622
12.783 10.675
9.077
7.843
6.873
6.097
5.467
4.948
4.514
4.147
3.834
3.564
3.329
3.122
2.499 Period 25
Period 26 20.121
15.983
13.003
10.810
9.181
7.896
6.908
6.118
5.480
4.956
4.520
4.151
3.837
3.566
3.330
3.123
2.500 Period 26
Period 27 20.707 18.330
13.211
10.935
9.237
7.943
6.935
6.136
5.492
4.964
4.524
4.154
3.839
3.567
3.331
3.123
2.500 Period 27
Period 28 21.281 18.663
13.406 11.051
9.307
7.984
6.001
6.152
5.502
4.970
4.528
4.157
3.840
3.568
3.331
3.124
2.500 Period 28
Period 29 21.844 18.984
13.591
5.510
11.158
13.765 11.258
9.370
8.022
6.983
6.166
4.975
4.531
4.159
3.841
3.569
3.332
3.124
2.500 Period 29
Period 30 22.396 17.292
9.427
8.055
7.003
6.177
5.517
4.970
4.534
4.160
3.842
3.569
3.332
3.124
2.500 Period 30
Period 35 24.999
18.665
14.498 11.655
9.644
8.176
7.070
6.215
5.539
4.992
4.541
4.184
3.845
3.571
3.333
3.125
2.500 Period 35
Period 40 27.355 19.793
15.046
11.925
9.779
8.244
7.105
6.233
5.548
4.997
4.544
4.168
3.846
3.571
3.333
3.125
2.500 Period 40
Payments (or receipts) at the end of each period.
Transcribed Image Text:Present Value of $1
Periods
2%
4%
6%
8%
10%
12%
14%
16%
18%
20%
22%
24%
26%
28%
30%
32%
40%
Periods
Period 1 0.980
0.062
0.043
0.926
0.909
0.893
0.877
0.862
0.847
0.833
0.820
0.806
0.794
0.781
0.769
0.758
0.714
Period 1
0.502
0.455
Period 2 0.961
0.025
0.890
0.857
0.826
0.797
0.769
0.743
0.718
0.604
0.672
0.650
0.630
0.610
0.574
0.510
Period 2
Period 3 0.942
0.889
0.840
0.794
0.751
0.712
0.675
0.641
0.609
0.579
0.551
0.524
0.500
0.477
0.435
0.364
Period 3
Period 4 0.924
0.855
0.792
0.735
0.683
0.636
0.592
0.552
0.516
0.482
0.451
0.423
0.397
0.373
0.350
0.329
0.260
Period 4
Period 5 0.906
0.822
0.747
0.681
0.621
0.567
0.510
0.476
0.437
0.402
0.370
0.341
0.315 0.201
0.260
0.250
0.186
Period 5
0.705
0.665
0.627
0.335
0.270
Period 6 0.888
0.790
0.630
0.564
0.507
0.456
0.410
0.370
0.303
0.249
0.275
0.250
0.227
0.207 0.189
0.133
Period 6
Period 7 0.871
0.760
0.583
0.513
0.452
0.400
0.354
0.314
0.222
0.198
0.178
0.159
0.123
0.143
0.095
Period 7
Period 8 0.853
0.731
0.540
0.487
0.404
0.351
0.305
0.260
0.233
0.204
0.179
0.157
0.139
0.108
0.068
Period 8
Period 9 0.837
0.703
0.502
0.500
0.424
0.361
0.308
0.263
0.225
0.104
0.187
0.144
0.125
0.108
0.094
0.082
0.048
Period 9
Period 10 0.820
0.676
0.558
0.483
0.386
0.322
0.270
0.227
0.191
0.182
0.137 0.118
0.099
0.085
0.073
0.062
0.035 Period 10
Period 11 0.804
0.650
0.527
0.429
0.350
0.287 0.237
0.195
0.182 0.135
0.112 0.094
0.070
0.068
0.058
0.047
0.025 Period 11
0.625
0.076
0.036
0.033 0.027
Period 12 0.788
0.497
0.397
0.319
0.257
0.208
0.168
0.137
0.112
0.092
0.062 0.052
0.043
0.018 Period 12
Period 13 0.773
0.601
0.489
0.368
0.200
0.229
0.182
0.145
0.116
0.093
0.075 0.061
0.050 0.040
0.013 Period 13
Period 14 0.758
0.577
0.442
0.340
0.283
0.205
0.180
0.125
0.009
0.078
0.062
0.049
0.030
0.032
0.025
0.021
0.009 Period 14
Period 15 0.743
0.555
0.417
0.315
0.239
0.183
0.140
0.108
0.084
0.065
0.051
0.040
0.031
0.025
0.020 0.016
0.012
0.000
0.008 Period 15
Period 16 0.728
0.534
0.394
0.292
0.218
0.163
0.123
0.093
0.071
0.054
0.042
0.032
0.025
0.019
0.015
0.005 Period 16
Period 17 0.714
0.513
0.371
0.270
0.198
0.146
0.108
0.080
0.060 0.045
0.034
0.026
0.020 0.015
0.012
0.003 Period 17
Period 18 0.700
0.494
0.350
0.250
0.180
0.130
0.005
0.069
0.051
0.038
0.028
0.021
0.016 0.012
0.000
0.007
0.002 Period 18
Period 19 0.686
0.475
0.331
0.232
0.184
0.116
0.083
0.060
0.043 0.031
0.023
0.017
0.012
0.009
0.007
0.005
0.002 Period 19
Period 20 0.673
0.456
0.312
0.215
0.149
0.104
0.073
0.051
0.037 0.026
0.019
0.014
0.010
0.007
0.005
0.004
0.001 Period 20
Period 21 0.660
0.199
0.093
0.083
0.439
0.204
0.135
0.064
0.044
0.031
0.022
0.015
0.011
0.008 0.006
0.004
0.003
0.001 Period 21
Period 22 0.647
0.422
0.278
0.184
0.123
0.056
0.038
0.026 0.018
0.013
0.009
0.006
0.004
0.003
0.002
0.001 Period 22
Period 23 0.634
0.406
0.262
0.170
0.112
0.074 0.049
0.033
0.022 0.015
0.010
0.007
0.005
0.003
0.002 0.002
0.000 Period 23
Period 24 0.622
0.390
0.247
0.158
0.102
0.068
0.043
0.028
0.019 0.013
0.008
0.006
0.004
0.003
0.002
0.001
0.000 Period 24
Period 25 0.810
0.375
0.233
0.148
0.002
0.059
0.038
0.024
0.018
0.010
0.007
0.005
0.003
0.002
0.001
0.001
0.000 Period 25
Period 26 0.598
0.361
0.220
0.135
0.084
0.053 0.033
0.021
0.014
0.009
0.006
0.004
0.002 0.002
0.001
0.001
0.000 Period 26
Period 27 0.586
0.347
0.207
0.125
0.076
0.047
0.029
0.018
0.011
0.007
0.005
0.003
0.002
0.001
0.001
0.001
0.000 Period 27
Period 28 0.574
0.333
0.196
0.116
0.089
0.042 0.026
0.016
0.010
0.008
0.004
0.002
0.002 0.001
0.001
0.000
0.000 Period 28
Period 29 0.563
0.321
0.185
0.107
0.063
0.037
0.022
0.014
0.008
0.005
0.003
0.002
0.001
0.001
0.000
0.000
0.000 Period 29
Period 30 0.552
Period 35 0.500
0.308
0.174
0.099
0.057
0.033
0.020
0.012
0.007
0.004
0.003
0.002
0.001
0.001
0.000
0.000
0.000 Period 30
0.253
0.130
0.068
0.036
0.019
0.010
0.006
0.003
0.002
0.001
0.001
0.000
0.000
0.000
0.000
0.000 Period 35
Period 40 0.453
0.208
0.097
0.046
0.022
0.011
0.005
0.003
0.001
0.001
0.000
0.000
0.000
0.000
0.000
0.000
0.000 Period 40
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