In: Accounting
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.
Click here to view factor tables
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