The Porter Beverage Factory owns a building for its operations. Porter uses only

Question

The Porter Beverage Factory owns a building for its operations. Porter uses only half of the building and is considering two options for the unused space. The Popcorn Store would like to purchase the half of the building that is not being used for $392,000. A 10% commission would have to be paid at the time of purchase. Salty Snacks would like to lease the half of the building for the next 5 years at $103,500 each year. Stewart would have to continue paying $42,800 of property taxes each year and $8,200 of yearly insurance on the property, according to the proposed lease agreement.

Determine the differential income or loss from the lease alternative. Enter a loss as a negative number.
$

Loss

Income

Explanation / Answer

Answer:

(Hence alternative two have higher receipt than alternative one, alternative two is more beneficial)

Computation of differential income or loss from the lease alternative: Alternative 1- Half of building purchase by popcorn store: Amount ($) Purchase value of building    3,92,000.00 Less- 10% Commission - 39,200.00 (10% of $ 3,92,000) Net purchase price received (A)    3,52,800.00 Alternative-2 Building lease out to Salty Snacks Amount ($) Lease price    1,03,500.00 Lease Period 5 Year Total Lease price for 5 Year    5,17,500.00 (1,03,500* 5 Year) Property Tax for 5 Year -2,12,500.00 ($ 42,500* 5 Year) Insurance of Building for 5 Year      -41,000.00 ($8,200 for 5 Year) Total receipt (B)    3,67,500.00 Excess receipt under alternative-2        14,700.00 ($ 3,67,500 - $ 3,52,800)

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