Net present value-cost of funds

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Reference no: EM131954707

The Teal 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, Teal has decided to locate a new factory in the Panama City area. Teal 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 $617,800, useful life 26 years.

Building B: Lease for 26 years with annual lease payments of $71,870 being made at the beginning of the year.

Building C: Purchase for $650,400 cash. This building is larger than needed; however, the excess space can be sublet for 26 years at a net annual rental of $6,980. Rental payments will be received at the end of each year. The Teal Inc. has no aversion to being a landlord.

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In which building would you recommend that The Teal Inc. locate, assuming a 10% 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.)

Net Present Value

(a) Building A $

(b) Building B $

(d) The Teal Inc. should locate itself in

Reference no: EM131954707

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