Sporty is interested in expanding its operations. A new facility will provide cash savings. Additionally, the company can sublease space and realize cash lease revenues. The current facility was acquired 10 years ago at a cost of $500,000.

Current after-tax operating data:

New facility (after-tax) operating data:

Management understands that the alternatives of expanding versus not expanding into a new facility are mutually exclusive. Use the net present value method to analyze whether the company should purchase a new facility with an estimated useful life of 20 years or continue to use its current facility. Sporty’s cost of capital is 8%.

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Annual cash contribution margin Annual cash fixed costs $100,000 $15,000