A Textile Company Is Considering Opening a Production and Shipping

Essay

A textile company is considering opening a production and shipping facility in Dallas to keep up with demand for its pillows. The 105,000- square- foot facility, if purchased, will require an initial investment of $255,000 and an annual operating cost of $68,500. It will have a $80,000 salvage value after 8 years. Alternatively, the facility can be leased with annual rent of $51,000 in year 1 and increasing by $1000 per year. If the company's minimum attractive rate of return is 6% per year, compounded quarterly, should the facility be purchased or leased?