A real estate purchase

Three months after the original meeting regarding the plant expansion, Peter received the report written by Jeff Martinelli and Jane Collins. He called them into his office to go over their findings.

The recommendation was for new construction rather than for buying or leasing an existing facility. "AP's particular requirements make it unlikely that we will be able to locate an existing facility that will adequately meet out needs..." were the words of the report.

The general area of Greenville, South Carolina had been chosen as the best location. The state of South Carolina offered a special program to attract industry, including the possibility of financing plant construction through industrial revenue bonds issued by the state. The proceeds of such bond issues were made available to companies moving their operations into the state, with interest payments made directly to the State Treasurer. The advantage to potential investors was that interest paid on state bonds is exempt from income tax. This permitted the state to offer the bonds at an interest rate lower than the prevailing rate for private bond issues, which are subject to tax.

A number of potential properties in the area had already been identified and inspected. Jeff explained that the site that would have been best suited for Audio Performance had already been sold before the report was even completed. "They must have known someone was interested in it. That's why they were in such a hurry to close the deal," said Jeff.

"We couldn't have done anything anyway," Jane added. "Even if we had gotten approval right away, it probably would have been too late. But we'll have to move quickly if we don't want to lose our second choice as well."

"Which one is that?" asked Peter.

"This one here, in the northern part of the state: 18 acres for $200,000," answered Jane.

"But that's over $10,000 an acre for unimproved land!"

"That's right. But it's worth it. It's by far the best buy in the area."

The three went over a number of other properties one by one, and Peter finally agreed that the site recommended by Jane and Jeff was indeed the best choice.

That afternoon he met with Jim Burke and got his approval.

Jim said he had discussed the matter at a recent Board of Directors and received approval in principle to proceed with the purchase including the land purchase. The next morning Crawford had Jane contact the agent and put in a formal bid of $150,000 for the property, hoping to get it for about $175,000. He was pleasantly surprised when the owner responded by lowering his asking price to $180,000. Peter immediately submitted a counterbid of $160,000 and was pleased when the owner finally agreed to settle for $170,000.

Peter called Jim Burke and brought him up to date. Jim said he was happy to hear the news and congratulated him on the good price. As he put down the phone, Peter was beginning to feel more and more confident of himself and his decision. He was sure that Audio Performance has just entered a new phase in its history. And with year end less than five months away, it couldn't have happened at a better time.

Questions about the story

1. Who had prepared the report on the plant expansion?

2. What did the report recommend?

3. What area seemed to be the best location for the new plant?

4. What made South Carolina such an attractive place to build a new plant?

5. Why can state bonds be offered at lower rates of interest than private bonds?

6. Why couldn't Audio Performance purchase the site recommended in the report?

7. Where was the second choice located?

8. How much would it cost?

9. Why did Peter call Jim Burke?

10. Why did Peter bid only $150,000 for the land?

11. What price was finally agreed on?

12. Was Burke satisfied with the price?