**Answer:**

The solution the given problem is done below.

**Explanation:**

**Building A: Purchase for a cash price of $600,000, useful life 25 years. **

—PV = $600,000.

**Building B: Lease for 25 years with annual lease payments of $69,000 being made at the beginning of the year.**

Rent X (PV of annuity due of 25 periods at 12%)

PV =$69,000 X 8.78432

PV=$606,118.08

**
Building C: Purchase for $650,000 cash. This building is larger than needed; however, the excess space can be sublet for 25 years at a net annual rental of $7,000. Rental payments will be received at the end of each year.**

PV of Building C—

Rent X (PV of ordinary annuity of 25 periods at 12%)

=$7,000 X 7.84314

PV=$54,901.98

Cashpurchasepriceof…………….$650,000.00

PV of rental income,……………..(54,901.98)

Net present value…………………..$595,098.02

**In which building would you recommend that The Black Knights Inc. locate, assuming a 12% cost of funds?
**

Lease Building C since the present value of its net cost is the smallest.