The Splish Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share
The Splish Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Splish has decided to locate a new factory in the Panama City area. Splish 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 very similar buildings that will meet their needs.
Building A: Purchase for a cash price of $616,000, useful life 25 years.
Building B: Lease for 25 years with annual lease payments of $70,700 being made at the beginning of the year.
Building C: Purchase for $654,700 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $6,820. Rental payments will be received at the end of each year. The Splish Inc. has no aversion to being a landlord.
In which building would you recommend that The Splish Inc. locate, assuming a 12% cost of funds? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)
|
Building C
|
|---|
Trending now
This is a popular solution!
Step by step
Solved in 4 steps
