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You own a movie theatre and have to replace all the seats in the theater. You have three choices. a. Option 1: You can spend
You own a movie theatre and have to replace all the seats in the theater. You have three choices. a. Option 1: You can spend $250,000 on seats that will cost $10,000 to clean each year and last four years. b. Option 2: You can spend $300,000 on seats that will cost only $5000 to clean each year and last seven years. c. Option 3: You can spend $400,000 on better quality seats that will cost only $500 to clean each year and last forever. Ignoring taxes and depreciation, which option would you pick, if your cost of capital is 8%
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