Question
The Grouper 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
The Grouper 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, Grouper has decided to locate a new factory in the Panama City area. Grouper 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 $615,800, useful life28years.
Building B:Lease for28years with annual lease payments of $71,850being made at the beginning of the year.
Building C:Purchase for $655,900cash. This building is larger than needed; however, the excess space can be sublet for28years at a net annual rental of $6,850. Rental payments will be received at the end of each year. The Grouper Inc. has no aversion to being a landlord.
In which building would you recommend that The Grouper Inc. locate, assuming a11% cost of funds?
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