MGMT 8500: $23-capstone -V30 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 $1,100,000 for use (FFT has these funds available in their bank account today so no mortgage is needed) Taxes, insurance, and repairs (per year) Intended years of use Projected market value in 15 years Option 2: Lease Intended years of use Deposit required today (this deposit will be returned to FFT when the lease contract is complete is 15 years) Annual lease payment Property taxes (annual) to be paid by FFT Insurance (annual) to be paid by FFT Required rate of return Methodology: $90,000 15 $1,400,000 15 $90,000 $ 120,000 $ 20,000 $ 16,000 10% 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). Page 7 12 Marking key Appendix 1 v30 Appendix 2-v30 Appendix 3-v30 Year(s) Amount of Cash Flows Factor Present Value of Cash Flows Appendix 4-v30