A company is currently located in Rafah and employs 50 people. Due to strong growth the...

A company is currently located in Rafah and employs 50 people. Due to strong growth the company needs additional office space. The company has the option of renting additional space at its current location in Rafah for the next two years, but after that will need to move to a new building. Another option the company is considering moving the entire operation to Jabalia immediately. A third option is for the company to rent a new building in Rafah immediately. If the company chooses the first option and rent new space at its current location, it can, at the end of two years, either rent a new building in Rafah or move to Jabalia.

The following are some additional facts about the alternatives and current situation:

The company has a 75 percent chance of surviving the next two years.
Renting the new space for two years at the current location in Rafah would cost $750,000 per year.
Moving the entire operation to a Jabalia would cost $1 million. Renting space would cost $500,000 per year.
Moving to a new building in Rafah would cost $200,000, and renting the new building’s space would cost $650,000 per year.
The company can cancel the rent at any time.
The company will build its own building in five years, if it survives.
Assume all other costs and revenues are the same no matter where the company is located.

WHAT COULD THE COMPANY DO?

Expert Solution

Ally Wells answered 9 months ago

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