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Greeley [361]
3 years ago
8

The Skysong Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share i

n the Sunbelt. In order to do so, Skysong has decided to locate a new factory in the Panama City area. Skysong 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 $620,000, useful life 27 years. Building B: Lease for 27 years with annual lease payments of $71,170 being made at the beginning of the year. Building C: Purchase for $657,500 cash. This building is larger than needed; however, the excess space can be sublet for 27 years at a net annual rental of $6,200. Rental payments will be received at the end of each year. The Skysong Inc. has no aversion to being a landlord. Click here to view factor tables In which building would you recommend that The Skysong Inc. locate, assuming a 11% cost of funds
Business
1 answer:
DENIUS [597]3 years ago
7 0

Answer:

Building C

Explanation:

Building A: Purchase for a cash price of $620,000, useful life 27 years.

Building B: Lease for 27 years with annual lease payments of $71,170 being made at the beginning of the year.

Building C: Purchase for $657,500 cash. This building is larger than needed; however, the excess space can be sublet for 27 years at a net annual rental of $6,200. Rental payments will be received at the end of each year.

11% cost of funds

we must determine the present value of each option:

  • Building A's present value = $620,000
  • Building B's present value = $71,170 x 9.48806 (PV annuity due factor, 11%, 27 periods) = $375,265.23
  • Building C's present value = $657,500 - [$6,200 x 8.5478 (PV ordinary annuity factor, 11%, 27 periods) = $657,500 - $52,996.36 = <u>$604,503.64 (LOWEST PV)</u>
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sineoko [7]

Answer:

c) 3.75 years

Explanation:

A fix Payment for a specified period of time is called annuity. The discounting of these payment on a specified rate is known as present value of annuity. The value of the annuity is also determined by the present value of annuity payment.

Formula for Present value of annuity is as follow

PV of annuity = P x [ ( 1- ( 1+ r )^-n ) / r ]

Where

P = Monthly Payment = $200

r = rate of interest = 6.25%

PV = Loan amount = $8,000

As we already have the present value of annuity we need to calculate the rate of return.

$8,000 = $200 x [ ( 1- ( 1+ 6.25%/12 )^-n ) / 0.0625/12 ]

$8,000 / $200 = [ ( 1- ( 1.0052 )^-n ) / 0.0052 ]

40 x 0.0052 = 1- ( 1.0052 )^-n

0.028 = 1 - 1.0052^-n

0.028 - 1 = - 1.0052^-n

-0.792 = - 1.0052^-n

0.792 = 1/1.0052^n

1.0052^n = 1/0.792

1.0052^n = 1.2626

n log 1.0052 = log 1.2626

n = log 1.2626 / log 1.0052

n = 44.96 months

n = 44.96 / 12 = 3.75

8 0
3 years ago
Bramble corp. wants to sell a sufficient quantity of products to earn a profit of $200000. if the unit sales price is $18, unit
mote1985 [20]

To solve for units sold at an income of $200,000:

First, I would subtract the variable cost of $8 from the unit sales price of $18 dollars which gives you $10.


Unit profit = $10

Fixed costs = $200,000

How many units need to be sold to earn an income of $200,000?


40,000 units x $10 = $400,000 - $200,000 = $200,000


40,000 units need to be sold to earn an income of $200,000.

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3 years ago
Max and Alexandra are married and incur $5,500 of qualifying expenses to care for their two children, ages 2 and 5. Max's earned
Sati [7]

Answer:

$5,000

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Although the limit for two qualifying children is the lesser of $6,000 or the actual expenses, the earned income limitation may apply. The amount of qualifying expenses can not exceed the earned income of the spouse with the lesser earned income, in this case, $5,000 .

Which is why the amount of the qualifying expenses for purposes of computing the child and dependent care credit is $5,000

3 0
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Short run speculation in currencies can create ________________________, at least for a time, where an expected appreciation lea
Basile [38]

Short run speculation in currencies can create a self fulfilling prophecy, at least for a time, where an expected appreciation leads to a stronger currency and vice versa.

<u>Explanation:</u>

The currency of a country can either appreciate or it can depreciate. If the currency of a country appreciates, it means that it has gone stronger in the currency market.

But if the currency of the country depreciates, then the currency has gone weaker in the market of the currency. With the appreciation of the currency, the imports for that country increases but it's exports decreases because it becomes expensive for other countries.

6 0
3 years ago
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