Lost City Livestock is developing a business plan to expand their direct$-$to$-$consumer meat sales in response to an increase in customer demand following the COVID pandemic. In particular, the manager needs to secure more freezer space to store their product inventory. The manager, Leo, has heard great things about the advantages of leasing freezer space, so he goes to a local cold storage equipment dealer to inquire about the differences between purchasing and leasing. Your internship task is to analyze these two options and recommend one of them to Leo.

$$ To purchase a new set of freezers, the dealer told Leo that the specific model he wants will cost $$500,000.$ If he chooses to buy, the dealer will provide financing at $3\mathrm{.}5\%$ interest for eight years $(8$ years$)$ with no money down. Equal total payments will be due annually, beginning one year from now $($eight payments in total, starting in Year $1).$ Leo plans to keep the freezers in good condition and thinks he will be able to salvage them for $$50,000$ in Year $8$ after making the final payment, when he plans to retire. To determine the annual loan payment amounts, use the PMT function in Excel.

$$ The equipment dealer also leases out freezer space at their location. If Leo chooses to lease the space, the annual lease payments will be $$53,550$ each with the first payment due now and annually thereafter $($nine payments in total, starting in Year $0).$ With the lease option, however, the freezers belong to the dealer so there will be nothing to sell at the end of the lease.

Build a spreadsheet model to compare the Net Present Value $($NPV$)$ of total costs for the two options $($purchase vs lease$).$ Leo wants to choose the option with the lowest total cost in terms of NPV$.$

$$ First, develop cash flow schedules for the two options. The cash flow schedules will represent Future Values $($FV$).($Note: Enter all costs as positive values, and salvage values as negative.$)$

$$ Second, discount the cash flow schedules into their Present Value $($PV$)$ equivalent using PV factors. Leo estimates that his discount rate is $7\mathrm{.}0\%.$

$$ All other operating and ownership costs are the same regardless of purchase or lease decision.