ABC Corp. owns a piece of land and building a few miles from its headquarters. The land originally cost ABC $500,000 to purchase. ABC is considering using the facility for a new training program. It could also rent a building about the same distance from its headquarters for $20,000 a year. A developer has offered ABC $2.5 million for its property. What factors should ABC consider when deciding whether or not to use its own facility or to sell it and rent the other building? What would you recommend?
CalcThere are a few factors to consider.
The land cost $500,000 to purchase, which is now a sunk cost. If they use the land and building for a new training program, it will be producing something for the company, which will add to the company's profitability.
If they rent the other building the same distance away for $20,000 per year, the $500,000 continues to be a sunk cost that can't be recovered. They ...
The solution analyzes if ABC Corp. should sell their facility or if they should use its own facility. Calculations and explanations are provided to support the decision.