Trips Logistics, a third$-$party logistics firm that provides warehousing and other logistics services, is facing

a decision regarding the amount of space to lease for the upcoming two$-$year period. The general

manager has forecast that Trips Logistics will need to handle a demand of $100,000$ units for each of the

next two years. Historically, Trips Logistics has required $1,000$ square feet of warehouse space for every

$1,000$ units of demand. For the purposes of this discussion, the only cost Trips Logistics faces is the cost

for the warehouse. Trips Logistics receives revenue of $$1\mathrm{.}22$ for each unit of demand. Rate of return $(k)=$

$0\mathrm{.}1.$ The manager has following options,

Get all warehousing space from the spot market as needed

Sign a two$-$year lease $.ft)$ for a fixed amount of warehouse space and get additional

requirements from the spot market

Sign a flexible lease to use between $60,000$ and $100,000$ sq$.$ft @ $$1$ per sq$.$ft $($upfront payment

$$10,000)$ with additional requirement from the spot market.

Other information

Lease price $=$$$1\mathrm{.}00$ per sq$.$ ft$.$ per year

Spot market price $=$$$1\mathrm{.}20$ per sq$.$ ft$.$ per year

& Binomial uncertainty: Demand can go up by $20\%$ with $p=0\mathrm{.}5$ or down by $20\%$ with $1-$

$p=0\mathrm{.}5$

Spot prices can go up by $10\%$ with $p=0\mathrm{.}5$ or down by $10\%$ with $1-p=0\mathrm{.}5$

Calculate the NPV for each option that the manger has. Use decision trees

for uncertainty. Show all work and calculations