1Medium20 marks
E-Education is a new start-up that develops and markets MBA courses offered over the Internet. The company is currently located in Bangalore and employs 150 people. Due to strong growth, the company needs additional office space. The company has the option of leasing additional space at its current location in Bangalore for the next two years, but after that will need to move to a new building. Another option the company is considering is moving the entire operation to a new building. Another option the company is considering is moving the entire operation to a small Central India town immediately. A fourth option is for the company to lease a new building in Bangalore immediately. If the company chooses the first option and leases new space at its current location, it can, at the end of two years, either lease a new building in Bangalore or move to a small town in Central India.
The following are some additional facts about the alternatives and current situation :
1. The company has a 75% chance of surviving the next two years.
2. Leasing the new space for two years at the current location in Bangalore would cost ₹ 7,50,000 per year.
3. Moving the entire location to Central India would cost ₹ 10 lakhs. Leasing a new building would cost ₹ 5,00,000 per year.
4. Moving to a new building in Bangalore would cost ₹ 2,00,000 and leasing the new building would cost ₹ 6,50,000.
5. The company can cancel the lease at any time.
6. The company would build its own building in five years, if it survives.
7. Assume all other costs and revenues are the same no matter where the company is located.
What should E-Education do ?