Prairie Sky Software is choosing a five-year lease. Downtown: rent 240,000 a year, no transit subsidy, staff-turnover cost 20,000 a year, fit-out 120,000 once. Suburban: rent 150,000 a year, transit subsidy 30,000 a year, turnover cost 45,000 a year, fit-out 200,000 once. The current office’s unamortised fit-out of 40,000 will be written off under either option. Compute each option’s annual cost, each option’s five-year total (undiscounted), and the advantage of Suburban.
Prairie Sky Software is choosing a five-year lease. Downtown: rent 240,000 a year, no transit subsidy, staff-turnover cost 20,000 a year, fit-out 120,000 once. Suburban: rent 150,000 a year, transit subsidy 30,000 a year, turnover cost 45,000 a year, fit-out 200,000 once. The current office’s unamortised fit-out of 40,000 will be written off under either option. Compute each option’s annual cost, each option’s five-year total (undiscounted), and the advantage of Suburban.
Answer
Downtown annual cost → 260000 · Suburban annual cost → 225000 · Downtown five-year total → 1420000 · Suburban five-year total → 1325000 · Advantage of Suburban → 95000
Cells - Downtown annual cost · ±0 - Suburban annual cost · ±0 - Downtown five-year total · ±0 - Suburban five-year total · ±0 - Advantage of Suburban · ±0 Annual: Downtown 240,000 + 0 + 20,000 = 260,000; Suburban 150,000 + 30,000 + 45,000 = 225,000. Five-year: 5 × 260,000 + 120,000 = 1,420,000; 5 × 225,000 + 200,000 = 1,325,000. Advantage 95,000. The 40,000 old fit-out is sunk and appears under neither. Excel: `=5*B5+B6` with annual total in row 5 and fit-out in row 6.
Method from Hermanson Vol 2 ch 22 and Heisinger & Hoyle §7.2 (the make-or-buy analogue); the Prairie Sky scenario is the course’s own