E6-12B (Analysis of Alternatives) Bandit Inc., manufactures ice tea and would like to increase its market share in the North.

E6-12B (Analysis of Alternatives) Bandit Inc., manufactures ice tea and would like to increase its market share in the North. In order to do so, Bandit has decided to locate a new factory in the Cedar Rapid area. Bandit 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 $1,500,000, useful life 25 years.

Building B: Lease for 25 years with annual lease payments of $125,000 being made at the beginning of the year.

Building C: Purchase for $1,750,000 cash. This building is larger than needed; however, the excess space

can be sublet for 25 years at a net annual rental of $21,000. Rental payments will be received at the end of each year. Bandit Inc. has no aversion to being a landlord.

Instructions

In which building would you recommend that Bandit Inc. locate, assuming a 8% cost of funds?