If Chester Corp. were to buy all of it's shares outstanding at its current price, how much would it cost Chester Corp, excluding
1 answer:
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Answer:
Location C costs least to the company as it only costs $461,160
Explanation:
We will evaluate all the three proposals
Location A Cost = $500,000
Location B
Down payment = $100,000
Annual year end payment = $50,000 for upcoming 20 years
Present value @ 8% = ( = 9.818 X $50,000 = $490,900
Net Present Value = $100,000 + $490,900 = $590,900
Location C
Payment of $40,000 at the beginning of each year, which means first payment will not be discounted and remaining 24 payments will be discounted.
Thus Present Value = $40,000 +( = $40,000 + 10.529 X $40,000 = $40,000 + $421,160 = $461,160
Thus Location C costs least to the company as it only costs $461,160