Exercise 6-12The Flounder Inc., a manufacturer of low-sugar, low-sodiu


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Exercise 6-12The Flounder Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Flounder has decided to locate a new factory in the Panama City area. Flounder

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Exercise 6-12The Flounder Inc., a manufacturer of low-sugar, low-sodium,
low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Flounder has decided to locate a new factory in the Panama City area. Flounder 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 very similar buildings that will meet their needs.

Building A: Purchase for a cash price of $618,900, useful life 27 years.

Building B: Lease for 27 years with annual lease payments of $71,820 being made at the beginning of the year.

Building C: Purchase for $652,700 cash. This building is larger than needed; however, the excess space can be sublet for 27 years at a net annual rental of $6,430. Rental payments will be received at the end of each year. The Flounder Inc. has no aversion to being a landlord.

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In which building would you recommend that The Flounder Inc. locate, assuming a 12% cost of funds? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Net Present Value
Building A$
Building B$
Building C$

The Flounder Inc. should locate itself in
Building B
Building C
Building A

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