Tyre presently rents and uses 7000 square meters of warehouse space for $2700 a month. It has the option of reducing the rented space to 2000 square meters, in which case the monthly rent would be $1000 a month. Furthermore, Tyre could cease renting warehouse space entirely. Tom Clay, the Tyre Corp. plant engineer, is considering three alternatives: 1. Buy the new warehouse and lease half the space to the Johnson Company. In turn, the Tyre-rented space would be reduced to 2000 square meters. 2. Buy the new warehouse and cease renting any warehouse space. 3. Continue as is, with 7000 square meters of rented warehouse space.

Managerial Economics: A Problem Solving Approach
5th Edition
ISBN:9781337106665
Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor
Chapter5: Investment Decisions: Look Ahead And Reason Back
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Tyre presently rents and uses 7000 square meters of warehouse space for $2700 a month. It has the option of reducing the rented space to 2000 square meters, in which case the monthly rent would be $1000 a month. Furthermore, Tyre could cease renting warehouse space entirely. Tom Clay, the Tyre Corp. plant engineer, is considering three alternatives: 1. Buy the new warehouse and lease half the space to the Johnson Company. In turn, the Tyre-rented space would be reduced to 2000 square meters. 2. Buy the new warehouse and cease renting any warehouse space. 3. Continue as is, with 7000 square meters of rented warehouse space.

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