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A major bakery-cafe chain is evaluating whether they should consolidate its two offices into one location when the two leases expire. In addition, the company also needs to decide if they want to purchase or lease the new location. The estimated costs for these three alternatives are as follows:

Alternative Continue Leasing Separate Offices Lease Combined Office Purchase Combined Office
Initial costs - - $270,000
Annual lease $53,550 $63,000 -
Annual maintenance costs - - $6000
Lease period 4 12 -
Market value at the end of year 12 - - $216,000

Which alternative should be selected based on the annual worth method? Use a MARR of 11% and a study period of 12 year(s).

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M938210

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