Exercise 6-12 The Riverbed Inc., a manufacturer of low-sugar, low-sodium, low-ch
ID: 2581386 • Letter: E
Question
Exercise 6-12 The Riverbed 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, Riverbed has decided to locate a new factory in the Panama City area. Riverbed 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 Riverbed Inc. has no aversion to being a landlord. Click here to view factor tables In which building would you recommend that The Riverbed Inc. locate, assuming a 11% 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 $
Building B $
Building C $
The Riverbed Inc. should locate itself in A,B orC
Explanation / Answer
Building A 612300 Building B 661123 =70170*9.42174 Building C 598322 =652900-(6430*8.48806) The Riverbed Inc. should locate itself in C Note: Minus sign may be used before answers