$In$ our final forum, $we$ will use the capital budgeting techniques we've been learning about $in$ Module $11to$ evaluate prospective projects. $In$ our case, Sands Brothers $isan$ international clothing manufacturer with $an$ aging production facility $in$ a declining $US$ apparel industry and thus $is$ weighing several options for its Santa Monica plant. Learn more about the state $of$ the $US$ garment industry hereUS Garment IndustryLinks $toan$ external site.

Sands Brothers plans $to$ idle its Santa Monica plant $on$ December $31,2023.$ Peter Laney, the corporate controller, has been asked $to$ look $at$ three options regarding the plant.

Option $1$: The plant, which has been fully depreciated for tax purposes, can $be$ sold immediately for $$340000$

Option $2$: The plant can $be$ leased $to$ the Austin Corporation, one $of$ Sands Brother's suppliers, for four years. Under the lease terms, Austin would pay Sands Brothers $$96000$ rent per year $(payableat$ year$-$end$)$ and would grant Sands Brothers $a$ $$18960$ annual discount off the normal price $of$ fabric purchased $by$ Sands Brothers $(assume$ discount received $at$ year$-$end for each $of$ the four years$).$ Austin would bear all the plant's ownership costs. Sands Brothers expects $to$ sell this plant for $$80000at$ the end $of$ the four$-$year lease.

Option $3$: The plant could $be$ used for four years $to$ make souvenir jackets for the Milano Cortina Olympics. Fixed overhead costs $(a$ cash outflow$)$ before any equipment upgrades are estimated $tobe$ $$8000$ annually for the four year period. The jackets are expected $to$ sell for $$42$ each. Variable cost per unit $is$ expected $tobe$ $$33.$ The following production and sales $of$ jackets are expected: $2023,8000$ units; $2024,12000$ units; $2025,16000$ units; $2026,4000$ units. $In$ order $to$ manufacture the jackets, some $of$ the plant equipment would need $tobe$ upgraded $atan$ immediate cost $of$ $$60000.$ The equipment would $be$ depreciated using the straight$-$line depreciation method and zero terminal disposal value over the four years $it$ would $bein$ use. Because $of$ the equipment upgrades, Sands Brothers could sell the plant for $$120000at$ the end $of$ four years.

Sands Brothers treats all cash flows $asif$ they occur $at$ the end $of$ the year, and $it$ uses $an$ after$-$tax required rate $of$ return $of12\%.$ Sands Brothers $is$ subject $toa40\%$ tax rate $on$ all income, including capital gains.

Required

Determine the net present value $of$ each $of$ the options and determine which option Sands Brothers should select using the $NPV$ criterion.

What nonfinancial factors should Sands Brothers consider before making its choice?