Reference no: EM132995939

The Pharoah 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, Pharoah has decided to locate a new factory in the Panama City area. Pharoah 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 $ 618,100, useful life 26 years.

Building B: Lease for 26 years with annual lease payments of $ 70,340 being made at the beginning of the year.'

Building C: Purchase for $ 653,200 cash. This building is larger than needed; however, the excess space can be sublet for 26 years at a net annual rental of $ 6,540. Rental payments will be received at the end of each year. The Pharoah Inc. has no aversion to being a landlord.

Question 1: In which building would you recommend that The Pharoah Inc. locate, assuming a 12% 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 of:
Building A $?
Building B $?
Building C $?

Question 2: The Pharoah Inc, should locate itself in which building?