Business, 16.10.2020 14:01 luvpeaceandsocc3678

The Buffalo 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, Buffalo has decided to locate a new factory in the Panama City area. Buffalo 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 $618,700, useful life 28 years.
Building B: Lease for 28 years with annual lease payments of $70,420 being made at the beginning of the year.
Building C: Purchase for $653,900 cash. This building is larger than needed; however, the excess space can be sublet for 28 years at a net annual rental of $6,460. Rental payments will be received at the end of each year. The Buffalo Inc. has no aversion to being a landlord. The Buffalo Inc. locate, assuming a 12% cost of funds.

Required:
a. In which building would you recommend that The Buffalo Inc. locate, assuming a 12% cost of funds?
b. What is the net present value for each building 1, building 2, and building 3?

Answers: 2

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The Buffalo Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to...

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