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Show all of your work to determine your answer. Option 1: Lease space or complete an addition Option 2: Add on to existing space and
Show all of your work to determine your answer. Option 1: Lease space or complete an addition Option 2: Add on to existing space and renew lease. Which option should he choose ? Palli. Capital Duus 16 POMLJ) Muma Manufacturing is considering leasing new plant space and purchasing new equipment, or completing an addition on BSN and refurbishing some old equipment Option 1: If he signs a 5 year lease for new plant space, he anticipates his revenues will increase approximately $80,000 per year, additional operating expenses incurred will be $20,000 per year, and additional rent (not included in the operating expenses) will be $15,000 per year. He also anticipates an upfront cost for leasehold improvements to outfit the new space to a commercial grade facility, at a one-time cost of $40,000. He can sell his current equipment today for $10,000. At the end of the lease term, he feels he can sell his leasehold improvements to a new tenant for approximately $7,000. Option 2: If he adds onto his current space and renews his current lease for another 5 years, the addition will cost him $40,000 today. He anticipates that with the new space, her revenues will increase approximately $70,000 per year, additional operating costs will be $10,000, and additional rent charged will be $10,000 per year. If he refurbishes some of his current equipment, he will do this at the end of year 3 for an anticipated cost of $15,000. At the end of the five year lease term, he will sell his refurbished equipment for approximately $5,000. The cost of capital is 10%
Show all of your work to determine your answer.
Option 1: Lease space or complete an addition
Option 2: Add on to existing space and renew lease. Which option should he choose ?
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