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Brubaker Inc., a manufacturer of high-sugar, low-sodium, lowcholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Brubaker has decided to locate a new factory in the Panama City area. Brubaker 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 buildings.

Building A: Purchase for a cash price of $610,000, useful life 25 years.

Building B: Lease for 25 years with annual lease payments of $70,000 being made at the beginning of the year.

Building C: Purchase for $650,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $6,000. Rental payments will be received at the end of each year. Brubaker Inc. has no aversion to being a landlord.

Instructions:

In which building would you recommend that Brubaker Inc. locate, assuming a 12% cost of funds?

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M9435906

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