Review problem of the martinez inc

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Reference no: EM131994933

Question: The Martinez 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, Martinez has decided to locate a new factory in the Panama City area. Martinez 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 $618,700, useful life 28 years.

Building B: Lease for 28 years with annual lease payments of $70,420 being made at the beginning of the year.

Building C: Purchase for $653,900 cash. This building is larger than needed; however, the excess space can be sublet for 28 years at a net annual rental of $6,460. Rental payments will be received at the end of each year. The Martinez Inc. has no aversion to being a landlord.

In which building would you recommend that The Martinez Inc. locate, assuming a 12% cost of funds?

Reference no: EM131994933

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