Exercise 6-12 The Culver Inc., a manufacturer of low-sugar, low-sodium, low-chol

Question

Exercise 6-12 The Culver 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, Culver has decided to locate a new factory in the Panama City area. Culver 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 $612,000, useful life 26 years. Building B: Lease for 26 years with annual lease payments of $71,630 being made at the beginning of the year. Building C: Purchase for $653,300 cash. This building is larger than needed; however, the excess space can be sublet for 26 years at a net annual rental of $6,080. Rental payments will be received at the end of each year. The Culver Inc. has no aversion to being a landlord Click here to view factor tables In which building would you recommend that The Culver Inc. locate, assuming a 10% cost of funds? 458,581.) Round factor values to 5 decimal places, eg. 1.25124 and final answer to 0 decimal places, eg Net Present Value Building A * Building B Building C The Culver Inc. should locate itself in Click if you would like to Show Work for this question: Open Show Work

Explanation / Answer

Net present value Building A 612000 Building B 721818 =71630*10.07704 Building C 597601 =653300-(6080*9.16095) The culver inc should locate itself in Building C

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