Imagine your company must decide whether to buy or lease office space. Determine the best course of action for your company using the information below:
Assume the stock market returns 11.3% per year on average.
Your company has $100,000 to spend for the down payment on the purchase of a new office.
A new office will cost $500,000
To rent a new office it will cost your company $3,500 per month and you will need to sign a 3 year lease.
Find any other information that is necessary to perform the calculation, such as the current market rate for a commercial loan.
What should you do: Buy or lease? Explain which option you believe is best, and justify your answer by calculating the time value of money. Describe other factors you should consider besides the time value of money, and explain why they are important.