Appendix One (Construct or lease)

Objective: Should FFT lease or construct their own production facility

Option 1: Construct
Costs to incur:
Buying land, construct building and getting ready for use (FFT has these funds available in their bank account today so no mortgage is needed)	$ 900,000
Taxes, insurance, and repairs (per year)	$ 20,000
Intended years of use	15
Projected market value in 15 years	$ 1,500,000
Option 2: Lease
Intended years of use	15
Deposit required today (this deposit will be returned to FFT when the lease contract is complete is 15 years)	$ 50,000
Annual lease payment	$ 120,000
Property taxes (annual) to be paid by FFT	$ 15,000
Insurance (annual) to be paid by FFT	$ 25,000
Required rate of return	10%

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).