Top Management Inc. owns a group of gas stations. The company is planning to open a new location and a building site has been located in a rapidly growing area. Brian Williams, the companys vice president in charge of new business development is trying to determine if Top management should buy or lease the property.

The initial research found the following:

Purchasing the building

The building can be bought and refurbished for $850,000, paid for with an immediate down payment of $$350,000 and payment of $175,000 per year over the next 4 years.

Property taxes of $7,500 per year, insurance of $8,000 per year, and repairs of $4,500 per year for a total $20,000 per year would be paid each year for 18 years.

The building would be sold at the end of 18 years for $500,000.

Leasing the building

Security deposit of $8,000 to be paid immediately. This deposit will be returned at the end of the lease (year 18).

First lease payment of $120,000 per year to be paid immediately

The other lease payments of $120,000 per year are to be paid in years 1 to 17.

Repairs $4,500 per year to be paid each year for 18 years

Property taxes and insurance will be paid by the owner of the building.

Management Inc. requires a 12 percent rate of return.

Required: Discuss the case using the format below. In your submission, be sure to use the NPV approach to advise whether or not Top management should buy or lease the building through calculations using the formula.