Reference no: EM132465971

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 $618,300, useful life 27 years.

Building B: Lease for 27 years with annual lease payments of $71,360 being made at the beginning of the year.

Building C: Purchase for $651,500 cash. This building is larger than needed; however, the excess space can be sublet for 27 years at a net annual rental of $6,090. Rental payments will be received at the end of each year. The Ayayai Inc. has no aversion to being a landlord.

Question 1: In which building would you recommend that The Ayayai Inc. locate, assuming a 11% cost of funds? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)