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In which building would you recommend that K Company locate

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Reference no: EM132901758

Question - K Company, a manufacturer of low-sugar, low-sodium, low-cholesterol delivered dinners, would like to increase its market share in the Sunbelt.

In order to do so, K Company has decided to locate a new factory in the Panama City area.  K Company 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 $600,000, useful life 25 years.

Building B: Lease for 25 years with annual lease payments of $69,000 being made at the beginning of the year.

Building C: Purchase for $650,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $7,000. K Company  will receive rental payments at the end of each year.

Required - In which building would you recommend that K Company locate, assuming a 12% cost of funds?

Reference no: EM132901758

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