The Indigo 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, Indigo has decided to locate a new factory in the Panama City area. Indigo 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 $619,800, useful life 26 years. Building B: Lease for 26 years with annual lease payments of $71,730 being made at the beginning of the year. Building C: Purchase for $650,100 cash. This building is larger than needed; however, the excess space can be sublet for 26 years at a net annual rental of $6,810. Rental payments will be received at the end of each year. The Indigo Inc. has no aversion to being a landlord. In which building would you recommend that The Indigo Inc. locate, assuming a 11% 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.)

		Net Present Value
Building A		$enter a dollar amount rounded to 0 decimal places
Building B		$enter a dollar amount rounded to 0 decimal places
Building C		$enter a dollar amount rounded to 0 decimal places

2.

Sunland Inc. manufactures cycling equipment. Recently, the vice president of operations of the company has requested construction of a new plant to meet the increasing demand for the companys bikes. After a careful evaluation of the request, the board of directors has decided to raise funds for the new plant by issuing $3,103,800 of 7% term corporate bonds on March 1, 2020, due on March 1, 2035, with interest payable each March 1 and September 1, with the first interest payment on September 1st, 2020. At the time of issuance, the market interest rate for similar financial instruments is 6%. As the controller of the company, determine the selling price of the bonds. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Selling price of the bonds

3. Sandhill Company owns a trade name that was purchased in an acquisition of McClellan Company. The trade name has a book value of $3,500,000, but according to GAAP, it is assessed for impairment on an annual basis. To perform this impairment test, Sandhill must estimate the fair value of the trade name. It has developed the following cash flow estimates related to the trade name based on internal information. Each cash flow estimate reflects Sandhills estimate of annual cash flows over the next 10 years. The trade name is assumed to have no salvage value after the 10 years. (Assume the cash flows occur at the end of each year.)

Cash Flow Estimate			Probability Assessment
$383,800			20%
641,400			50%
753,700			30%

(a) What is the estimated fair value of the trade name? Sandhill determines that the appropriate discount rate for this estimation is 10%. (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Estimated fair value