Please help with calculating each NPV of the buildings. Please show work, to hel

Question

Please help with calculating each NPV of the buildings. Please show work, to help me understand the answer. Thanks!

The Sweet 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, Sweet has decided to locate a new factory in the Panama City area. Sweet 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 $612,000, useful life 26 years. Building B: Lease for 26 years with annual lease payments of $71,630 being made at the beginning of the year. Building C: Purchase for $653,300 cash. This building is larger than needed; however, the excess space can be sublet for 26 years at a net annual rental of $6,080. Rental payments will be received at the end of each year. The Sweet Inc. has no aversion to being a landlord. in which building would you recommend that The Sweet Inc 458,581.) ocate, assuming a 10% cost of unds? Round factor values to 5 dec na Places, eg .25124 and fi a ans ver Od cima paces e. Net Present Value Building A Building B s Building C $

Explanation / Answer

PVAF (10%,26) = 9.16095

PVAF (10%,25)= 9.07704

NPV of building A= cash purchase price =$6,12,000

NPV of building B = 71630+71630* PVAF (10%,25) = 7,21,818 (Since 26 installments are paid at the beginning of each year)

NPV of building C = 6,53,300 - (6080*PVAF 10%,26) = $5,97,601

It should locatein building C since it has lowest NPV in terms of cost.

Looking forward to your upvote..

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