Lease versus Buy with Constraints (Appendix): Provo Airport Authority has $45 million in its airport capital funds account which is available for the acquisition of capital equipment for the airport. The following projects, with the cost of each project, need to be constructed at the airport ($ in millions):

The total cost of these projects is $97 million. None of the projects is divisible. However, each of the projects can be leased by making the annual lease payment shown above for a period of seven years. At the end of the lease period, the project becomes the property of the airport. The airport authority determined that it must acquire all of these projects. Those that cannot be acquired with the funds in the capital account must be leased. Analysis of alternative investment opportunities shows that there is an annual opportunity benefit of $.10 for each $1 unused in the capital funds account. For example, if the total cost of projects purchased from the capital funds account is $35 million, the opportunity benefit from the $10 million in idle funds is $1 million per year over the seven-year lease period. The authority uses a 7.5 percent discount rate and is tax exempt. This discount rate is used regardless of the opportunity benefit noted above.

Required: Which project should Provo Airport Authority purchase with the $45 million in the capital funds account? Show computational support for your choices.

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Project Neutron security scanners Control tower radar Doppler radar New runway lighting system Jetways for new wing Annual Lease Cost $19 34 15 11 18 21435 $6 9