VB Flantronics Inc Which Alternative Should Be Recommended Based on the Present Worth

question 5

Essay

VB Flantronics Inc. is a company that designs, makes, and sells computer and home entertainment sound systems, along with a line of headphones and microphones for personal digital media. The company is trying to decide whether it should purchase or lease a building for its manufacturing and research- and- development operation in China. If the building is leased, a payment will have to be made at the beginning of each year. The estimated costs are the following: $$\begin{array} { | l | l | l | } \hline \text { Alternative } & \text { Purchase } & \text { Lease } \\\hline \text { Initial Cost } & \$ 320,000 & -\\\hline \text { Lease } &- & \$ 40,000 \\\hline \text { Annual Operating Costs } & \$ 8500 & \$ 7000 \\\hline \text { Salvage Value } & \$ 80,000 &- \\\hline \text { Life, years } & 7 & 1 \\\hline\end{array}$$ Which alternative should be recommended based on the present worth method? Use a MARR of 9%.

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