Lowell co. owns a building and is considering signing a lease with shiny city company for $50,000 for the next 5 years. lowell co. pays yearly property taxes and insurance totaling $4,000. radiant company has offered to buy the building for $200,000. determine the best option for lowell co.

The best option is to lease the building since the differential income is $30,000 higher ($230,000 > $200,000)

Explanation:

To determine which option is better we must find the differential income for the two options:

- differential revenue:

leasing the building                                          selling the building

$50,000 x 5 years =  $250,000                          $200,000

- differential costs:

leasing the building                                          selling the building

$4,000 x 5 years = $20,000                                $0

- differential income:

leasing the building                                          selling the building

$250,000 - $20,000 = $230,000                        $200,000

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