The consulting agency looks for available land in a region to build a centrally located water/wastewater treatment
Question:
The consulting agency looks for available land in a region to build a centrally located water/wastewater treatment facility. They then prepare capital investment estimates for the country. The country needs to determine whether to purchase the infrastructure upon completion or lease it over the next twenty years from the consulting agency. Using population demand of 45,000 per year and an average revenue rate of $50 per person, the country calculates the annual revenue to be $2,250,000. The consulting agency estimates a 1.5MGD (million gallons per day) facility will cost $2 million to build. The consulting agency offers a plan to lease the facility to the country for a rate of $150,000 per year. The discount rate to be used is 5%.
Should the country lease or buy the facility?