DB 6-4 - Using Time Value of Money Techniques to Analyze Several Alternatives Eagle Inc., is a manufacturer and would like to increase its market share. In order to do so, Eagle has decided to identify and locate a new, bigger factory. Eagle will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three buildings.

Building A: Purchase for a cash price of $1,600,000, useful life 24 years.

Building B: Lease for 24 years with annual lease payments of $125,000 being made at the beginning of each year.

Building C: Purchase for $1,750,000 cash. This building is larger than needed; however, the excess space can be sublet for 24 years at a net annual rental of $21,000. Rental payments will be received at the end of each year. Eagle Inc. has no aversion to being a landlord.

Required: Calculate (show calculations) the cost of each building option, and rank the buildings from the lowest cost to the highest cost. Assume an 8% discount rate (interest rate) is appropriate for Eagle Inc. (Note: Base your recommendation solely on the data above. Ignore income taxes or other factors not described in the data above.)