Building AtABuilding C$Building B $tAtA$Net Present ValueThe Bridgeport Inc. should locate itself in The Bridgeport Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share inthe Sunbelt. In order to do so, Bridgeport has decided to locate a new factory in the Panama City area. Bridgeport will either buy orlease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to thefollowing three very similar buildings that will meet their needs.Building A: Purchase for a cash price of $611,000, useful life 25 years.Building B: Lease for 25 years with annual lease payments of $71,370 being made at the beginning of the year.Building C: Purchase for $657,400 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at anet annual rental of $6,800. Rental payments will be received at the end of each year. The Bridgeport Inc. has no aversion to being alandlord.Click here to view factor tables.In which building would you recommend that The Bridgeport Inc. locate, assuming a 12% cost of funds? (Round factor values to 5decimal places, e.g. 1.25124 and final answer to O decimal places, e.g. 458,581.)

A fundamental sum is paid for the use of the asset or property each year in the form of a lease is…

Answered: The Bridgeport Inc., a manufacturer of…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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You have been hired as a consultant for Pristine Urban-Tech Zither, Incorporated (PUTZ), manufacturers of fine zithers. The market for zithers is growing quickly. The company bought some land three years ago for $740,000 in anticipation of using it as a toxic waste dump site but has recently hired another company to handle all toxic materials. Based on a recent appraisal, the company believes it could sell the land for $950,000 on an aftertax basis. In four years, the land could be sold for $1,225,000 after taxes. The company also hired a marketing firm to analyze the zither market, at a cost of $130,000. An excerpt of the marketing report is as follows: The zither industry will have a rapid expansion in the next four years. With the brand name recognition that PUTZ brings to bear, we feel that the company will be able to sell 7,120, 7,920, 9,215, and 6,110 units each year for the next four years, respectively. Again, capitalizing on the name recognition of PUTZ, we feel that a premium…
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Vishunu
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