FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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The Sandhill 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, Sandhill has decided to locate a new factory in the Panama City area. Sandhill 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 $612,300, useful life 26 years.
Building B: Lease for 26 years with annual lease payments of $70,170 being made at the beginning of the year.
Building C: Purchase for $652,900 cash. This building is larger than needed; however, the excess space can be sublet for 26 years at a net annual rental of $6,430. Rental payments will be received at the end of each year. The Sandhill Inc. has no aversion to being a landlord.
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In which building would you recommend that The Sandhill Inc. locate, assuming a 11% cost of funds?
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