B&B Construction can construct a new warehouse for 1,156,181 dollars, use it for 30 years and...

B&B Construction can construct a new warehouse for 1,156,181 dollars, use it for 30 years and then sell it for 1,249,096 dollars (due to property appreciation). Or, this company can lease an equivalent building for 313,711 dollars per year for 30 years. What is the annual worth of the LEAST costly option if the MARR is 18% per year, compounded annually. (Hint: Check your signs!)

Expert Solution

	MARR	18%
Option 1	Construct New Ware House		Option 2	Lease Building
Year	Particular
0	New Ware House Cost	$1,156,181.00	Lease Rent
1				313711
2				313711
3				313711
4				313711
5				313711
6				313711
7				313711
8				313711
9				313711
10				313711
11				313711
12				313711
13				313711
14				313711
15				313711
16				313711
17				313711
18				313711
19				313711
20				313711
21				313711
22				313711
23				313711
24				313711
25				313711
26				313711
27				313711
28				313711
29				313711
30	Sale of Ware House	$1,249,096.00		313711

	Present Value of Sales Consideration of Warehouse	1249096/(1+0.18)^30		Present Value	313711*(1-(1/(1.18)^30))/0.18
		8712.355707			$1,730,682.71
	Net Present Value	$1,147,468.64

	Least Costly Option	$1,147,468.64

	Annual Worth	1147468/30
		$38,248.95

jeff jeffy answered 1 month ago

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