Midwest Manufacturing has had to downsize by about 25%. As a result, one of its warehouses is currently unused. Insurance, security, and minimal heating and lighting cost $170,000 per year. When it was in use, the facility costs for these items and normal maintenance were $425,000 per year. The building and land are valued at $3M.
Midwest expects to begin using the warehouse again in 4 years. Another firm wants to lease the warehouse for 5 years with an option to renew. If Midwest uses an interest rate of 10%, what should the Midwest charge the firm? The firm will pay all costs for insurance, security, heating, lighting, and maintenance. If needed, Midwest can lease or build another warehouse for equivalent costs.