Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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I need help with FIN-320 module 7 assignement. The scenario is listed below:
Financial Option 1: Purchase a $10 Million Building
Rationale for investment: The business is considering environmental, social, and corporate governance
(ESG) factors as part of its investment into a new building for its headquarters. The building itself will be
a Leadership in Energy and Environmental Design (LEED)-certified building, but the new site being
considered currently houses a large, inactive gas station that sold both gasoline and diesel fuel. The new
site also has a sizable repair facility left over that was used for deliveries and tractor-trailer trucks for
more than 50 years. While some restoration was performed on the site prior to the new building’s
construction, the previous owner ran out of funds before they were ever able to bring the site up to
LEED standards. Four large fuel tanks remain on the site, and they will also need to be addressed per
LEED standards.
Assumptions to consider:
$10 million cash purchase
Building generates additional net profits after tax of $1.25 million per year
20 year expected useful life of building
Salvage value: $1.5 million
Discount rate is 10%
Financial Option 2: Lease of $25 Million in Equipment
Rationale for investment: The business’s current equipment is efficient, but it uses a substantial amount
of electricity. Operating the production line also creates significant waste material, including waste
plastics. The business is looking into leasing newer, more environmentally friendly equipment that will
still allow it to be at least as efficient in production as it is now.
Assumptions to consider:
Annual cash flows generated with equipment: $4 million
Discount rate is 12%
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