Your company is interested in having a new facility constructed. The contractor expects that it will take approximately 3 years to complete the building. The contractor has offered you three payment plans for the building. They are as follows: Time Plan 1 Plan 2 Plan 3 Today $2,112,000 $0 $3,168,000 1 year from now $6,864,000 $11,484,000 $0 2 years from now $6,864,000 $0 $10,032,000 3 years from now $6,864,000 $11,484,000 $10,032,000
The CFO of your company has asked you to provide recommendation concerning which payment plan to accept. What is your recommendation? Assume your weighted-average cost of capital is 16% and you have sufficient cash on hand to make any required payments today.
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