Question

Lowell Co. owns a building and is considering signing a lease with Shiny City Company for $50,000 for the next 5 years. Lowell Co. pays yearly property taxes and insurance totaling $4,000. Radiant Company has offered to buy the building for $200,000. Determine the best option for Lowell Co.

Answer 1

The best option is to lease the building since the differential income is $30,000 higher ($230,000 > $200,000)

Step-by-step explanation:

To determine which option is better we must find the differential income for the two options:

- differential revenue:

leasing the building selling the building

$50,000 x 5 years = $250,000 $200,000

- differential costs:

leasing the building selling the building

$4,000 x 5 years = $20,000 $0

- differential income:

leasing the building selling the building

$250,000 - $20,000 = $230,000 $200,000