Question

The Larkspur 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, Larkspur has decided to locate a new factory in the Panama City area. Larkspur 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 $610,600, useful life 27 years.

Building B: Lease for 27 years with annual lease payments of $70,870 being made at the beginning of the year.

Building C: Purchase for $657,200 cash. This building is larger than needed; however, the excess space can be sublet for 27 years at a net annual rental of $6,110. Rental payments will be received at the end of each year. The Larkspur Inc. has no aversion to being a landlord.

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In which building would you recommend that The Larkspur 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

Building A

$enter a dollar amount rounded to 0 decimal places

Building B

$enter a dollar amount rounded to 0 decimal places

Building C

$enter a dollar amount rounded to 0 decimal places

show work and explain

Answer 1

Attached are two excel sheets, the first excel sheet summarizes the solution and the second one showcases the formulas used within excel (in column titled NPV $ Amount)