Reference no: EM132516121
Comparison of projects, no income taxes
Santolis is a rapidly growing eco-technology company that has a required rate of return of 14%. It plans to build a new facility in Adelaide. The building will take two years to complete.
The building contractor offered Santolis a choice of three payment plans, as follows:
Plan I. Payment of $175 000 at the time of signing the contract and $4 700 000 upon completion of the building. The end of the second year is the completion date.
Plan II. Payment of $1 625 000 at the time of signing the contract and $1 625 000 at the end of each of the two succeeding years.
Plan III. Payment of $325 000 at the time of signing the contract and $1 500 000 at the end of each of the three succeeding years.
Required
Question 1. Using the net present value method, calculate the comparative cost of each of the three payment plans being considered by Santolis.
Question 2. Which payment plan should Santolis choose? Explain.
Question 3. Discuss the financial factors, other than the cost of the plan, and the non-financial factors that should be considered in selecting an appropriate payment plan.
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