Problem $3($Worth $40$ percent $20$ percent each$)($show all of your work for credit$)$ The following information is given to you regarding the decision to either purchase warehouse space on the spot market or sign a three$-$year lease for the warehouse. One thousand square feet of warehouse space is required for every $1000$ units of demand, and the current demand for your company is $110,000$ units per year. You are forecasting demand to either increase or decrease at a rate of $15\%$ with a probability of increasing at $60\%$ and a probability of decreasing at $40\%.$ The probabilities are independent and unchanged from year to year. You have two options you can sign a three$-$year lease for current demand at a price of $$2\mathrm{.}00$ per square foot per year or purchase warehouse space on the spot market for $$2\mathrm{.}05$ per square foot. Spot prices may go up by $8$ percent with a probability of $65\%$ or may go down by $10$ percent with a probability of $35\%.$ The probabilities are independent and unchanged from year to year Your revenue for the product is $$2\mathrm{.}15$ per unit handled. You use a discount rate of $12\%.$

Calculate BOTH the Spot NPV and Lease NPV $($lease of $110,000sqft.$ per year$)$ to compare?

Which one is the better choice and why?