Selena Diaz Rivera Discussion- Due by March 30, 2018 Discussion (Time Value of M

Question

Selena Diaz Rivera Discussion- Due by March 30, 2018 Discussion (Time Value of Money) 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 willeither buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available stes to the tollowing three buidings Building A: Purchase for a cash price of $610,000, useul lite 25 years Building B: Lease for 25 years with annual lease payments of $70,000 being made at the beginning of tme year Building C: Purchase for $650,000 cash. This building is larger than needed, however, me excess space can be sutbiet for 25 years at a net annual rental of $6,000. Rental payments will be received at the end of each year The Birupaker inc/ has no aversion to being a landlore ich building would you recommend that Brubaker Inc. locate, assuming a 12% cost offunds? (Show me your work (Note: Please post your answer by using "Add a new discussion topic" buton below Add a new discussion topic Last post Replies

Explanation / Answer

Building A

Cash Price 6,10,000/-

Cost of Fund =6,10,000*12% =73,200/-

Building B

Annual Lease Payment =70,000/-

Building C

Purchase For Cash Price 6,50,000/-

Cost of Fund = 6,50,000*12% =78000

Less Annual Rental              =(6000)

Net Cost                             =72,000

Brubaker Inc should locate in Building B , because the cost (70,000/-) is less as compared to other buildings.

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