Your firm bought a building for $1.5 million five years ago. With no immediate use for the space, you have been leasing it out. There are ten years remaining on the lease and the annual (pre-tax) lease income is $375,000 (at the beginning of each year). You are now considering an expansion project that would use the building. The tax rate is 35% and cost of capital is 10%. Then, suppose that you could also sell the building (rather than continue to lease it out or use it for the proposed expansion project). The building recently appraised at $2.35 million. If you sell the building, you face potential tax consequences on the sale and you give up future depreciation tax shields. You have been depreciating it on a 15-year straight-line schedule, so there are 10 years of depreciation remaining. You will also have to pay the tenant a $200,000 fee (net of taxes) for early cancellation of the lease. What is the present value of the sale option? With this new information, what opportunity cost should you include for the use of the building in your evaluation of whether or not to undertake the expansion project?