On January 1, 2018, Central Perk Inc. has decided to locate a new coffee bean factory in Ruidoso, NM, to increase its market share in the Southwest. Central Perk Inc. will either buy or lease a site depending upon which is more advantageous, based solely on cost. The site location committee has narrowed down the available sites to the following 6 buildings:
Building A: Purchase today for a cash price of $500,000. ?
Building B: Pay $122,500 immediately and lease for 6 years with annual lease payments of $80,000 being due at the end of each year.
Building C: Lease for 14 years with annual lease payments of $56,250 being due at the beginning of each year. The first lease payment is due immediately.
Building D: Purchase today for $585,000 cash. This building is larger than needed; however, the excess space can be sublet for 10 years at a net annual rental income of $13,650. Rental income payments will be received at the end of each year.
Building E: Lease for 8 years with annual lease payments of $60,000 being due at the beginning of each year, with the first lease payment due immediately. Also, a balloon payment of $230,000 is due at the end of 8 years.
Building F: Lease for 12 years with annual lease payments of $77,750 due at the end of the year. The first lease payment is due December 31, 2019.
Assuming an 8% cost of funds, which building would you recommend to Central Perk Inc.? You must show your calculations for each of the 6 building options and clearly state which building option you would choose and why. Base your choice solely on cost.