Should WLW lease or construct their own production facility Option 1: Construct Costs to incur: Buying land, construct building and getting ready for use $ 360,000 Taxes, insurance, and repairs (per year) $ 34,000 Intended years of use 20 Projected market value in 20 years $ 1,600,000 Maximum down payment WLW can make $ 500,000 Remainder in four payments of; $ 160,000 Revenue opportunity Building annex will be leased to a tenant and will generate a lease revenue (per year) for 10 years $60,000 Option 2: Lease Intended years of use 20 First lease payment due now $ 90,000 Rest of the lease payments (years 2-20) $ 90,000 Operating costs to be paid by WLW Repairs (annual) $ 9,000 Maintenance (annual) $ 26,000 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).
Should WLW lease or construct their own production facility
Option 1: Construct
Costs to incur:
Buying land, construct building and getting ready for use
$ 360,000
Taxes, insurance, and repairs (per year)
$ 34,000
Intended years of use
20
Projected market value in 20 years
$ 1,600,000
Maximum down payment WLW can make
$ 500,000
Remainder in four payments of;
$ 160,000
Revenue opportunity
Building annex will be leased to a tenant and will generate a lease revenue (per year) for 10 years
$60,000
Option 2: Lease
Intended years of use
20
First lease payment due now
$ 90,000
Rest of the lease payments (years 2-20)
$ 90,000
Operating costs to be paid by WLW
Repairs (annual)
$ 9,000
Maintenance (annual)
$ 26,000
Initial one-time deposit, will be returned in year 20
$ 40,000
Required
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).
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