Marin Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in Western Canada. To do so, Marin has decided to locate a new factory in Kelowna, B.C. Marin will either buy or lease a site, depending on 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 $600,000, useful life 25 years. Building B: Lease for 25 years with annual lease payments of $70,000 being made at the beginning of the year. Building C: Purchase for $652,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $7,900. Rental payments will be received at the end of each year. Marin has no aversion to being a landlord. Click here to view Table A.4 - PRESENT VALUE OF AN ORDINARY ANNUITY OF 1 Click here to view Table A.5 - PRESENT VALUE OF AN ANNUITY DUE OF 1 Calculate the net present value of three buildings, assuming a 12% cost of funds. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answers to O decimal places, e.g. 5,275.) Building A Building B Building C $ $ $ Net present value In which building would you recommend that Marin locate? Marin should locate itself in
Marin Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in Western Canada. To do so, Marin has decided to locate a new factory in Kelowna, B.C. Marin will either buy or lease a site, depending on 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 $600,000, useful life 25 years. Building B: Lease for 25 years with annual lease payments of $70,000 being made at the beginning of the year. Building C: Purchase for $652,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $7,900. Rental payments will be received at the end of each year. Marin has no aversion to being a landlord. Click here to view Table A.4 - PRESENT VALUE OF AN ORDINARY ANNUITY OF 1 Click here to view Table A.5 - PRESENT VALUE OF AN ANNUITY DUE OF 1 Calculate the net present value of three buildings, assuming a 12% cost of funds. (For calculation purposes, use 5 decimal places as displayed in the factor table provided. Round final answers to O decimal places, e.g. 5,275.) Building A Building B Building C $ $ $ Net present value In which building would you recommend that Marin locate? Marin should locate itself in
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Transcribed Image Text:Marin Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in Western
Canada. To do so, Marin has decided to locate a new factory in Kelowna, B.C. Marin will either buy or lease a site, depending on 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 $600,000, useful life 25 years.
Building B: Lease for 25 years with annual lease payments of $70,000 being made at the beginning of the year.
Building C: Purchase for $652,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a
net annual rental of $7,900. Rental payments will be received at the end of each year. Marin has no aversion to being a landlord.
Click here to view Table A.4 - PRESENT VALUE OF AN ORDINARY ANNUITY OF 1
Click here to view Table A.5 - PRESENT VALUE OF AN ANNUITY DUE OF 1
Calculate the net present value of three buildings, assuming a 12% cost of funds. (For calculation purposes, use 5 decimal places as
displayed in the factor table provided. Round final answers to O decimal places, e.g. 5,275.)
Building A
Building B
Building C
$
Net present value
In which building would you recommend that Marin locate?
Marin should locate itself in
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