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. Discuss the financial factors, other than the cost of the plan, and the nonfinancial factors that shouldbe considered in selecting an appropriate payment plan.
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. 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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