Solution-Evaluate the npv for lease option

Evaluate the npv for lease option

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Reference no: EM132562333

BRL Logistics, a third-party logistics firm that provides warehousing and other logistics services. The general manager at BRL Logistics must decide the amount of space to lease for the upcoming three-year period. He has forecast that BRL Logistics will need to handle a demand of 100,000 units for each of the three years. Historically, BRL Logistics has required 1,000 sq. ft. of warehouse space for every 1,000 units of demand. For the purposes of this discussion, the only cost BRL Logistics faces is the cost for the warehouse.

Question 1: BRL Logistics receives revenue of $1.20 for each unit of demand. The general manager must decide whether to sign a three-year lease or obtain warehousing space on the spot market each year. The three year lease costs $0.95 per square foot per year for each of the three years. BRL Logistics has a discount rate of k = 0.1. The general manager decides to compute the NPV of signing a three-year lease for 100,000 sq. ft. of warehouse space. Evaluate the NPV for lease option.

Reference no: EM132562333

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Evaluate the npv for lease option

Reference no: EM132562333

Reference no: EM132562333

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