What would the NPV be for this option? Financial Option 1: Purchase a $10 Million Building Rationale for investment: The business is considering environmental, social, and corporate governance (ESG) factors as part of its investment into a new building for its headquarters. The building itself will be a Leadership in Energy and Environmental Design (LEED)-certified building, but the new site being considered currently houses a large, inactive gas station that sold both gasoline and diesel fuel. The new site also has a sizable repair facility left over that was used for deliveries and tractor-trailer trucks for more than 50 years. While some restoration was performed on the site prior to the new building’s construction, the previous owner ran out of funds before they were ever able to bring the site up to LEED standards. Four large fuel tanks remain on the site, and they will also need to be addressed per LEED standards. Assumptions to consider: • $10 million cash purchase • Building generates additional net profits after tax of $1.25 million per year • 20 year expected useful life of building • Salvage value: $1.5 million • Discount rate is 10%
What would the NPV be for this option?
Financial Option 1: Purchase a $10 Million Building Rationale for investment: The business is considering environmental, social, and corporate governance (ESG) factors as part of its investment into a new building for its headquarters. The building itself will be a Leadership in Energy and Environmental Design (LEED)-certified building, but the new site being considered currently houses a large, inactive gas station that sold both gasoline and diesel fuel. The new site also has a sizable repair facility left over that was used for deliveries and tractor-trailer trucks for more than 50 years. While some restoration was performed on the site prior to the new building’s construction, the previous owner ran out of funds before they were ever able to bring the site up to LEED standards. Four large fuel tanks remain on the site, and they will also need to be addressed per LEED standards.
Assumptions to consider: •
$10 million cash purchase •
Building generates additional net profits after tax of $1.25 million per year •
20 year expected useful life of building • Salvage value: $1.5 million •
Discount rate is 10%
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