The Land Development Corporation (LDC) has an opportunity to purchase one of two rental properties. Both properties cost the same amount. Property A is located in a growth community where demand is increasing. The company believes it will be able to raise its rental rates over the next three years. Specifically, LDC expects an income stream of $150,000 in year one, $200,000 in year two and $250,000 in year three. Property B is located in a stable area and is expected to produce an income stream of $190,000 per year for the next three years. Under these circumstances:. 1. suboptimization is likely to occur if management is put under pressure to produce short-term results.
2. suboptimization is not possible because the total income from Property A is more than the total income from Property B.
3. suboptimization is likely to occur if management is encouraged to focus on long-term goals.
4. none of the answers is correct.