Reference no: EM132591197
Question - The Ayayai Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Ayayai has decided to locate a new factory in the Panama City area. Ayayai will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three very similar buildings that will meet their needs.
Building A: Purchase for a cash price of $618,900, useful life 27 years.
Building B: Lease for 27 years with annual lease payments of $71,820 being made at the beginning of the year.
Building C: Purchase for $652,700 cash. This building is larger than needed; however, the excess space can be sublet for 27 years at a net annual rental of $6,430. Rental payments will be received at the end of each year. The Ayayai Inc. has no aversion to being a landlord.
Calculate the net present value of Building A, Building B, and Building C options, assuming a 12% cost of funds. In which building would you recommend that The Ayayai Inc. locate?
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