Topic BB Additional Exercise The Crossroad Company is an international clothing manufacturer. Its Santa Monica plant will become idle on December 31, 2008. Peter Laney, the corporate controller, has been asked to look at the three options regarding the plant. Option 1: The plant, which has been fully depreciated for tax purposes, can be sold immediately for $340,000. Option 2: The plant can be leased to the Austin Corporation, one of Crossroad's suppliers, for four years. Under the lease terms, Austin would pay Crossroad $96,000 rent per year (payable at the end of each year) and would grant Crossroad $18,960 annual discount on the normal price of fabric purchased by Crossroad (assume discount received at the end of each of the four years). Austin would bear all of the plant's ownership costs. Crossroad expects to sell this plant for $80,000 at the end of the four-year lease. Option 3: The plant could be used for four years to make souvenir jackets for the Olympics. Fixed overhead costs (a cash flow) before any equipment upgrades are estimated to be $8,000 annually for the four-year period. The jackets are expected to sell for $42 each. Variable cost per unit is expected to be $33. The following production and sales ofjackets are expected: 0 2009: 8,000 units 0 2010: 12,000 units 0 2011: 16,000 units 0 2012: 4,000 units In order to manufacture the jackets, some of the plant equipment would need to be upgraded at an immediate cost of $60,000. The equipment would be depreciated using the straight-line depreciation method and zero terminal disposal value over the four years it would be in use. Because of the equipment upgrades, Crossroad could sell the plant for $120,000 at the end of four years. No change in working capital would be required