Stemway Requires a New Manufacturing Facility

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