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Bandit Inc


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 $2,500,000, useful life 25 years. Building B: Lease for 25 years with annual lease payments of $150,000 being made at the beginning of the year Building C Purchase for $3,250,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $42,000. Rental payments will be received at the beginning of each year. Bandit Inc. has no aversion to being a landlord Required: Which building would you recommend that Bandit Inc. locate to, assuming a 4% cost of funds? Explain why you selected the option you did. Round all amounts to the nearest whole dollar. LITE

Option 1

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Option 2

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