Question
The Riverbed 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 Riverbed 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, Riverbed has decided to locate a new factory in the Panama City area. Riverbed 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 $611,800, useful life 26 years. Building B: Lease for 26 years with annual lease payments of $70,900 being made at the beginning of the year. Building C: Purchase for $655,200 cash. This building is larger than needed; however, the excess space can be sublet for 26 years at a net annual rental of $6,230. Rental payments will be received at the end of each year. The Riverbed Inc. has no aversion to being a landlord. In which building would you recommend that The Riverbed Inc. locate, assuming a 12% cost of funds?
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