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 in a new building for its headquarters. The building itself will be a Leadership in Energy and Environmental Design (LEED)-certified building. However, the new site currently has a large, inactive gas station that sold both gasoline and diesel fuel. The new site also has a large repair facility that was used for deliveries and tractor-trailer trucks for more than 50 years. Some restoration was performed on the site, but the previous owner ran out of funds before they could 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%

My answer for Option 1 ^ Please tell me if I am wrong.

Financial Option 2: Lease of $25 Million in Equipment Rationale for investment: The businesss current equipment is efficient, but it uses a lot of electricity. The production line also creates significant waste material, including waste plastics. The business is looking into leasing newer, more environmentally friendly equipment that will still allow it to be at least as efficient in production as it is now.

Assumptions to consider:

Annual cash flows generated with equipment: $4 million

Discount rate is 12%

15-year useful life

No salvage value

Net Present Value (NPV) Calculator