You watched a product demonstration for a wonder mop at a demonstration fair, and were so impressed that you paid $ 50,000 for the rights to the product. You are now analysing whether you should start producing the wonder mops, and have collected the following information

• The equipment needed to manufacture the mop will cost $150,000, and it can be depreciated straight line over a 5-year life time to a salvage value of $ 25,000.
• You will be using a building that you currently own, but rent out, as the facility to house the equipment. You will have to obviously evict the current tenants, who pay you $ 15,000 a year in rent. This building is being depreciated straight line, and is yielding $5,000 in depreciation each year.
• You expect to sell 5,000 mops a year at $ 40 a mop. The raw materials and labor associated with producting each mop will be $ 10.
• You expect to spend $ 50,000 a year producing infomercials (30-minute TV spots to promote your product).
• You will need to produce and maintain an inventory, equal to three months of sales, to meet demand. (This will have to occur before you sell any units.)
• Your tax rate is 40% and you estimate your discount rate to be 12%. a. Estimate the opportunity cost of the rental building that will be used for the facilities.