Corrine Company owns a warehouse that it no longer needs in its own operations. The warehouse was built, at a cost of $270,000, 10 years ago, at which time its estimated useful life was 15 years. There are two proposals for the use of the warehouse: 1. Rent it at $72,000 per year, which includes estimated costs of $27,000 per year for maintenance, heat, and utilities to be paid by the lessor. 2. Sell it outright to a prospective buyer who has offered $225,000. Any capital gain would be taxed at the 30 percent rate.
Corrine Company owns a warehouse that it no longer needs in its own operations. The warehouse was built, at a cost of $270,000, 10 years ago, at which time its estimated useful life was 15 years. There are two proposals for the use of the warehouse: 1. Rent it at $72,000 per year, which includes estimated costs of $27,000 per year for maintenance, heat, and utilities to be paid by the lessor. 2. Sell it outright to a prospective buyer who has offered $225,000. Any capital gain would be taxed at the 30 percent rate.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Which proposal should the company accept? Why?
Transcribed Image Text:Corrine Company owns a warehouse that it no longer needs in its own operations. The
warehouse was built, at a cost of $270,000, 10 years ago, at which time its estimated useful life
was 15 years. There are two proposals for the use of the warehouse:
1. Rent it at $72,000 per year, which includes estimated costs of $27,000 per year for
maintenance, heat, and utilities to be paid by the lessor.
2. Sell it outright to a prospective buyer who has offered $225,000. Any capital gain would be
taxed at the 30 percent rate.
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