The Black Knights Inc., a manufacturer of low-sugar, low-sodium, low-cholesterol TV dinners, would like to increase its market share in the Sunbelt. In order to do so, Black Knights has decided to locate a new factory in the Panama City area. Black Knights will either buy or lease a site depending upon which is more advantageous. The site location committee has narrowed down the available sites to the following three buildings.

Building A: Purchase for a cash price of $614,000, useful life 27 years.

Building B: Lease for 27 years with annual lease payments of $70,910 being made at the beginning of the year.

Building C: Purchase for $650,300 cash. This building is larger than needed; however, the excess space can be sublet for 27 years at a net annual rental of $6,620. Rental payments will be received at the end of each year. The Black Knights Inc. has no aversion to being a landlord. (Use the table below.)

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

The Black Knights Inc. should locate itself in

Building A
Building C
Building B