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Net present value | Accounting homework help

The Black Knights 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, Black Knights has decided to locate a new factory in the Panama City area. Black Knights will either buy or lease a site depending upon which is more advantageous. The site location committees has narrowed down the available sites to the following three buildings.

Building A: Purchase for a cash price of $600,000, useful for 25 years.

Building B: Lease for 27 years with annual lease payments of $69,000 being made at the beginning of the year.

Building C: Purchase for $650,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $7,000. Rental payments will be received at the end of each year. The Black Knights Inc. has no aversion to being a landlord.

In which building would you recommend that The Black Knights Inc. locate, assuming a 12% cost of funds?

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