In which building would you recommend that Sarasota Inc. locate, assuming a 10% cost of funds? (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 4,585.81.) Building A Building B Building C $ tA $ tA tA $ Net Present Value 1,540,000 1,176,533 1,795,573
In which building would you recommend that Sarasota Inc. locate, assuming a 10% cost of funds? (Round factor values to 5 decimal places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 4,585.81.) Building A Building B Building C $ tA $ tA tA $ Net Present Value 1,540,000 1,176,533 1,795,573
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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![Sarasota Inc., manufactures ice tea and would like to increase its market share in the North. In order to do so, Sarasota has decided to
locate a new factory in the Cedar Rapid area. Sarasota will either buy or lease a site depending upon which is more advantageous. The
site location committee has narrowed down the available sites to the following three buildings:
Building A: Purchase for a cash price of $1,540,000, useful life 26 years.
Building B: Lease for 26 years with annual lease payments of $124,000 being made at the beginning of the year.
Building C: Purchase for $1,952,000 cash. This building is larger than needed; however, the excess space can be sublet for 26 years at a
net annual rental of $18,300. Rental payments will be received at the end of each year. Sarasota Inc. has no aversion to being a
landlord.
Click here to view factor tables
In which building would you recommend that Sarasota Inc. locate, assuming a 10% cost of funds? (Round factor values to 5 decimal
places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 4,585.81.)
Building A
$
tA
Building C
Building B $
tA
$
Net Present Value
1,540,000
1,176,533
1,795,573](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fa6ea8983-163c-46c9-8622-fe71cfe1e0e8%2Fb01d0d7b-faa9-4ae4-b71e-5470cddcfe02%2F3c3tfq_processed.png&w=3840&q=75)
Transcribed Image Text:Sarasota Inc., manufactures ice tea and would like to increase its market share in the North. In order to do so, Sarasota has decided to
locate a new factory in the Cedar Rapid area. Sarasota will either buy or lease a site depending upon which is more advantageous. The
site location committee has narrowed down the available sites to the following three buildings:
Building A: Purchase for a cash price of $1,540,000, useful life 26 years.
Building B: Lease for 26 years with annual lease payments of $124,000 being made at the beginning of the year.
Building C: Purchase for $1,952,000 cash. This building is larger than needed; however, the excess space can be sublet for 26 years at a
net annual rental of $18,300. Rental payments will be received at the end of each year. Sarasota Inc. has no aversion to being a
landlord.
Click here to view factor tables
In which building would you recommend that Sarasota Inc. locate, assuming a 10% cost of funds? (Round factor values to 5 decimal
places, e.g. 1.25124 and final answers to 2 decimal places, e.g. 4,585.81.)
Building A
$
tA
Building C
Building B $
tA
$
Net Present Value
1,540,000
1,176,533
1,795,573
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