Astor Engineering recently merged with another firm and could lease additional office space or purchase its own
Question:
Astor Engineering recently merged with another firm and could lease additional office space or purchase its own building. The $30,000 per year lease agreement will be a net, net, net lease, which means that the lessee (Astor) will pay the real estate taxes on the leased space, the building insurance on the leased space, and the common area maintenance. Since these costs are about the same if Astor owned the building, they do not need to be considered in the analysis. A new building will cost $880,000 to purchase, but there is considerable uncertainty about what it will be worth in 20 years, which is the planning period selected. The individuals involved in the discussion made optimistic, most likely, and pessimistic estimates of $2,400,000, $1,400,000, and $900,000, respectively. Determine if Astor should purchase the building under any of the estimated resale values at i = 10% per year.
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