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Indigo Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and related facilities. Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,860,400. An immediate down payment of $411,200 is required, and the remaining $1,449,200 would be paid off over 5 years at $352,200 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $504,200. As the owner of the property, the company will have the following out-of-pocket expenses each period. Property taxes (to be paid at the end of each year) Insurance to be paid at the beginning of each year) Other (primarily maintenance which occurs at the end of each year) 16.100 $41,610 27,500 $85,210 Lease: First National Bank has agreed to purchase the site, construct the building, and install the appropriate fixtures for Indigo Inc. if Indigo will lease the completed facility for 12 years. The annual costs for the lease would be $277,930. Indigo would have no responsibility related to the facility over the 12 years. The terms of the lease are that Indigo would be required to make 12 annual payments (the first payment to be made at the time the store opens and then each following year). In addition, a deposit of $109,700 is required when the store is opened. This deposit will be returned at the end of the 12th year, assuming no unusual damage to the building structure or fixtures. Click here to view factor tables Compute the present value of lease vs purchase. (Currently, the cost of funds for Indigo Inc. is 10%.) (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to o decimal places, e.g. 458,581.) Lease Purchase Present value Which of the two approaches should Indigo Inc. follow? Indigo Inc, should the facilities 1. FUTURE VALUE OF 1 TABLE. Contains the amounts to which I will accumulate i deposited now at a specified rate and left for a specified number of periods (Table 6.1) Table 6.1 FUTURE VALUE OF 1 (FUTURE VALUE OF A SINGLE SUM) FF. FRUST 16000 1200 1300 100 100 100 LES 1061219 LOTS 13 191 4 1.000 1.10381 1.12551 21551 5 10405 1.13341119 125 122 6 11316LS1194 11.34010 2 14 12 1313 TI 8 171661215401377 1.1909 1.346 1.4 121899 1800 13 LH 9 LOS 1.34337 1.3129 130 1.500 1034 1.29061 1.3751 1.565 1.3198 1412 1.519 36 9 2.25000 1.34857 14430 1.599 2.43 1.37279 145 1.071 2100 15 1* 1.435 1.5566 1.0 20 24062 215454 19 ASI 1. 1.7931 2.0 2.5 3.000 1. A 2.2 248330 331714 3003 1.54891.72157 1.9 2.2006 1.57 1.74 1.050 2052 23 25 1.61854 20 235 1.67 218 2734388567 27 1.9070222129 217346 S. >> 1772.041 23589 M 1164 541509 > 81162.00757 2.400 1.350 31 1.54759 2.150 250 3373125780 31554 272579 . 192223 224 225 5519.45 34 2.3053 27152335 73510 35 2.373212 551 2.0199 243354 20 10 . 26 2.695706 ISELE 40 2.300 2.45 3.30 GP 1.0000 1.10000 LO 12 15000

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