- April 15, 2020
Sun Devil Cookie Company
SunDevil Cookie Company
Inthe case of , I would be of the opinion thatbuilding the factory is in the best interest of the company. Thiswould be more profitable as compared to renting the land for thetwenty five year period. The company will come to enjoy the benefitsof the factory for twenty five years with positive net present valuereturns and positive returns, when compared to renting the land at acost of one million two hundred and fifty thousand dollars per year.Renting the land would garner a total of thirty one million dollars($31,000,000) over the stipulated time period. It would be makingreturns without the need for any subsequent investment on the part ofthe proprietors. The only bad thing would be the opportunity loss.The firm would stand to make in upwards of thirteen million dollarsper annum after tax.
Whenmaking investment decision, it is always prudent to evaluate the longterm benefits against the short term benefits. With renting the land,the only benefits are the rent. When it comes to the cookie factory,the company gets to benefit from the increased inflation as they mayhike the prices of the cookies. Another benefit accrued from thecookie factory, is the working capital which will be recovered at theend of the life cycle of the factory. The recovered working capitalcan be used to invest in another business venture.
Investingin the factory is a wise decision compared to renting the land. Thisis seen through the factors of demand and supply. The factory sellsall the cookies that it produces. This guarantees it a return ininvestment. With the land, one can`t be sure if a renter will availthemself to rent it. This causes the company to have an unreliableincome stream. The funds raised from the cookie sales can be used tooffset any other investments that might crop up during the life cycleof the factory.
Anotherfactor that makes the factory a more viable option than renting, isthe social benefits that accrue. The social benefits are the creationof jobs. The factory will create employment for the people of thelocality, which will in turn lead to increased demand for theirproduce. Other benefits that will derive from the factory will be theinfrastructure development. Th government will do its level best tospur the growth of the infrastructure around the factory so as toenable it to move its goods at a faster rate. The improvedinfrastructure will also benefit the surrounding community. Thefactory may also engage in corporate social responsibility, whichwill benefit the factory too. In comparison to renting the land, theonly benefit accrued from it will all go to the company. With thefactory, the community around it will benefit too as well as thecompany.
Itis not only prudent to consider the economic benefits of the factorybut also the social benefits of it. The reason for this is thecorrelation between all dimensions of life, whether economic, social,political, or legal. Each facet affects the others directly orindirectly, and in our case, an increase in the amount of socialbenefits would consequently accrue benefits in the economic sector aswell. AllAll in all the benefits of the factory greatly outweighthose of the rental of the land. It this that makes factory the moreappropriate venture to pursue not the renting of the land. In mycapacity, I would advise the company to invest in the factory.