TheSweetInc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in
Question:
TheSweetInc., 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,Sweethas decided to locate a new factory in the Panama City area.Sweetwill 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 $617,900, useful life27years.
Building B:Lease for27years with annual lease payments of $70,330being made at the beginning of the year.
Building C:Purchase for $655,700cash. This building is larger than needed; however, the excess space can be sublet for27years at a net annual rental of $6,700. Rental payments will be received at the end of each year. TheSweetInc. has no aversion to being a landlord.
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In which building would you recommend that TheSweetInc. locate, assuming a12% cost of funds?
What is the Net present Value
Building A
Building B
Building C
The company should locate itself in which of the buildings