Question
Delish Co, a manufacturer of cake and bread, would like to increase its market share in Sumatera. In order to do so, Delish has decided
Delish Co, a manufacturer of cake and bread, would like to increase its market share in Sumatera. In order to do so, Delish has decided to locate a new factory in Medan. Delish 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 X: Purchase for $2,600,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $24,000. Rental payments will be received at the end of each year. Delish has no objection to being a landlord. Building Y: Purchase for a cash price of $2,440,000, useful life 25 years. Building Z: Lease for 25 years with annual lease payments of $280,000 being made at the beginning of the year.
Required: In which building would you recommend that Delish Co. locate, assuming a 12% cost of funds? (give the complete calculation)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started