Objective: Should WAW lease or construct their own production facility Option 1: Construct Costs to incur: Buying land, construct building and getting ready for use $ 230,000 Taxes, insurance, and repairs (per year) $ 30,000 Intended years of use 20 Projected market value in 20 years $ 1,600,000 Maximum down payment WAW can make $ 500,000 Remainder in four payments of; $ 180,000 Option 2: Lease Intended years of use 20 First lease payment due now $ 100,000 Rest of the lease payments (years 2-20) $ 90,000 Operating costs to be paid by WAW Repairs (annual) $ 7,000 Maintenance (annual) $ 25,000 Initial one-time deposit, will be returned in year 20 $ 40,000 Required rate of return 15% Methodology: The consulting team is proposing to perform a NPV analysis and determine the benefit to leasing or construction. Based on the analysis, they will recommend the preferred option (construction or leasing).
Objective: Should WAW lease or construct their own production facility
Option 1: Construct
Costs to incur:
Buying land, construct building and getting ready for use
$ 230,000
Taxes, insurance, and repairs (per year)
$ 30,000
Intended years of use
20
Projected market value in 20 years
$ 1,600,000
Maximum down payment WAW can make
$ 500,000
Remainder in four payments of;
$ 180,000
Option 2: Lease
Intended years of use
20
First lease payment due now
$ 100,000
Rest of the lease payments (years 2-20)
$ 90,000
Operating costs to be paid by WAW
Repairs (annual)
$ 7,000
Maintenance (annual)
$ 25,000
Initial one-time deposit, will be returned in year 20
$ 40,000
Required
15%
Methodology:
The consulting team is proposing to perform a
Based on the analysis, they will recommend the preferred option (construction or leasing).
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