Indigo Inc., manufactures ice tea and would like to increase its market share in the North. In order to do so, Indigo has decided to locate a new factory in the Cedar Rapid area. Indigo 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 $1,536,000, useful life 27 years. Building B: Lease for 27 years with annual lease payments of $125,000 being made at the beginning of the year. Building C: Purchase for $1,954,000 cash. This building is larger than needed; however, the excess space can be sublet for 27 years at a net annual rental of $20,900. Rental payments will be received at the end of each year. Indigo Inc. has no aversion to being a landlord. Click here to view factor tables In which building would you recommend that Indigo Inc. locate, assuming a 12% cost of funds? (Round factor values to 5 decimal places, eg. 1.25124 and final answers to 2 decimal places, eg. 4,585.81.) Building A Building B Building C $ $ $ Net Present Value

Indigo Inc., manufactures ice tea and would like to increase its market share in the North. In order to do so, Indigo has decided to locate a new factory in the Cedar Rapid area. Indigo 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 $1,536,000, useful life 27 years. Building B: Lease for 27 years with annual lease payments of $125,000 being made at the beginning of the year. Building C: Purchase for $1,954,000 cash. This building is larger than needed; however, the excess space can be sublet for 27 years at a net annual rental of $20,900. Rental payments will be received at the end of each year. Indigo Inc. has no aversion to being a landlord. Click here to view factor tables In which building would you recommend that Indigo Inc. locate, assuming a 12% cost of funds? (Round factor values to 5 decimal places, eg. 1.25124 and final answers to 2 decimal places, eg. 4,585.81.) Building A Building B Building C $ $ $ Net Present Value

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter10: Standard Costing And Variance Analysis

Section: Chapter Questions

Problem 79C

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