Brubaker Inc., a manufacturer of high
sugar, low
sodium, low
cholesterol 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 $
useful life
years
Building B: Lease for
years with annual lease payments of $
being made at the beginning of the year.
Building C: Purchase for $
cash This building is larger than needed; however, the excess space can be sublet for
years at a net annual rental of $
Rental payments will be received at the end of each year. The Brubaker Inc. has no aversion to being a landlord.
In which building would you recommend that Brubaker Inc. locate, assuming a
cost of funds?
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