New Pharm Corporation is a rapidlygrowing biotech company that has a required rate of return of 14%. It plans to build a new facility in SantaClara County. The building will take 2 years to complete. The building contractor offered New Pharm achoice 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 thebuilding. 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 ofthe 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 thethree succeeding years. Q. Which payment plan should New Pharm choose? Explain.
New Pharm Corporation is a rapidly
growing biotech company that has a required
Clara County. The building will take 2 years to complete. The building contractor offered New Pharm 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.
Q. Which payment plan should New Pharm choose? Explain.
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