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Appendix One (Construct or lease) Objective: Should WMM lease or construct their own production facility Option 1: Construct Costs to incur Actual expenditure towards buying
Appendix One (Construct or lease) Objective: Should WMM lease or construct their own production facility Option 1: Construct Costs to incur Actual expenditure towards buying land, $ 300,000 construct building and getting ready for use Taxes, insurance, and repairs (per year) $ 20,000 Intended years of use 18 Projected market value in 18 years $ 1,300,000 Budgeted maximum expenditure towards buying $ 500,000 land, construction of building and getting ready for use. Remainder in four payments of; $ 175,000 Option 2: Lease Intended years of use 18 First lease payment due now $ 100,000 Rest of the lease payments (years 2-17) $ 120,000 Operating costs to be paid by WMM Repairs expenses (annual) $ 17,000 Maintenance (annual) $ 18,000 Initial one-time deposit, will be returned in year $ 10,000 18 Required rate of return 14% 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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