A Major Bakery- Cafe Chain Is Evaluating Whether They Should

question 1

Essay

A major bakery- cafe chain is evaluating whether they should consolidate its two offices into one location when the two leases expire. In addition, the company also needs to decide if they want to purchase or lease the new location. The estimated costs for these three alternatives are as follows: $$\begin{array} { l | l | c | c } \hline \text { Alternative } & \begin{array} { c } \text { Continue Leasing } \\\text { Separate } \\\text { Offices }\end{array} & \begin{array} { c } \text { Lease } \\\text { Combined } \\\text { Office }\end{array} & \begin{array} { c } \text { Purchase } \\\text { Combined } \\\text { Office }\end{array} \\\hline \text { Initial costs } &- &- & \$ 270,000 \\\hline \text { Annual lease } & \$ 53,550 & \$ 63,000 & - \\\hline \text { Annual maintenance costs } &- &- & \$ 6000 \\\hline \text { Lease period } & 4 & 12 & - \\\hline \begin{array} { l } \text { Market value at the end of } \\\text { year } 12\end{array} &- &- & \$ 216,000 \\\hline\end{array}$$ Which alternative should be selected based on the annual worth method? Use a MARR of 11% and a study period of 12 year(s).