Appendix One (Construct or lease) Objective: Should WTB lease or construct their own production facility...
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Appendix One (Construct or lease) Objective: Should WTB lease or construct their own production facility Option 1: Construct Costs to incur: Buying land, construct building and getting ready for use $ 790,000 Taxes, insurance, and repairs (per year) $ 30,000 Intended years of use 18 Projected market value in 18 years $ 1,760,000 Maximum down payment WTB can make $ 800,000 Remainder in four annual payments of: $ 200,000 Annual capital improvements to be made during years 7-12 (5 years) $ 18,000 Option 2: Lease Intended years of use 18 First lease payment due now $ 150,000 Rest of the lease payments (years 2-17) $ 140,000 Operating costs to be paid by WTB Repairs expenses (annual) $ 17,000 Maintenance (annual) $ 18,000 Initial one-time deposit, will be returned in year 18 $ 45,000 Required rate of return 12% 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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