Question

Wither Spoon Company requires a new manufacturing facility. It found three locations; all of which would provide the needed capacity, the only difference is the price. Location A may be purchased immediately for $500,000 cash. Location B may be acquired with an immediate down payment of $100,000 and annual payments of $39,900 at the end of each of the next twenty years. Location C requires $42,500 payments at the beginning of each of the next twenty-five years. Assuming Wither Spoon Company's borrowing costs are 8% per annum, which option is the least costly to the company?

Answer 1

Answer:

$42,500 payments at the beginning of each of the next twenty-five years. Assuming Wither Spoon Company's borrowing costs are 8% per annum

Explanation:

Assuming Wither Spoon Company's borrowing costs are 8% per annum

th e option that is least costly to the company is Location C because it only requires $42,500 payments at the beginning of each of the next twenty-five years.

Hence Location A which may be purchased immediately for $500,000 cash and Location B which may be acquired with an immediate down payment of $100,000 and annual payments of $39,900 at the end of each of the next twenty years are not the best option for the company to choose from which therefore makes LOCATION C the best option for Wither Spoon Company because it save cost as as well the least costly to the company.