Dunn Inc. owns and operates a number of hardware stores in the New England region. Recently, the company has decided to locate another store in a rapidly growing area of Maryland. The company is trying to decide whether to purchase or lease the building and related facilities.
Purchase: The company can purchase the site, construct the building, and purchase all store fixtures. The cost would be $1,861,700. An immediate down payment of $412,400 is required, and the remaining $1,449,300 would be paid off over 5 years at $361,500 per year (including interest payments made at end of year). The property is expected to have a useful life of 12 years, and then it will be sold for $505,800. As the owner of the property, the company will have the following out-of-pocket expenses each period.
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Property taxes (to be paid at the end of each year)
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$40,320
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Insurance (to be paid at the beginning of each year)
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26,830
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Other (primarily maintenance which occurs at the end of each year)
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17,200
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$84,350
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