Stemway Requires a New Manufacturing Facility

question 77

Multiple Choice

Stemway requires a new manufacturing facility. Management found three locations; all of which would provide needed capacity, the only difference is the price. Location A may be purchased for £500,000. Location B may be acquired with a down payment of £100,000 and annual payments at the end of each of the next twenty years of £50,000. Location C requires £40,000 payments at the beginning of each of the next twenty-five years. Assuming Stemway's borrowing costs are 8% per annum, which option is the least costly to the company?

• A) Location A
• B) Location B
• C) Location C
• D) Location A and Location B

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Definitions:

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