1)Lease option
a.What are the relevant costs and benefits of leasing the additional space to Diamond Events?
b.Are any costs or benefits irrelevant?
c.What is the NPV of leasing the additional space to Diamond Events?
d.What is the IRR?
e.Do the NPV and IRR decision making rules agree?
f.Sensitivity analysisi.Construct a cost of capital sensitivity table for all valuation types with costs of capital ranging from 11% to 15% in increments of 0.5%. That is fill in the following chart:LEASE OPTION COST OF CAPITAL SENSITIVTYCost of Capital11.0%11.5%12.0%12.5%13.0%13.5%14.0%14.5%15.0%NPVii.Construct 3×3 NPV and IRR Sensitivity Analyses reflecting the following informationLEASE OPTION NPV SENSITIVITYIncrease in repairs, maintenance, and utilities7,500 15,000 22,500 Decrease in restaurant sales4%8%12%
Professor
2)Build option – Outcome A: Cease operations
a.What are the relevant costs and benefits of starting the brewery?
b.Are any costs or benefits irrelevant? c.What is the NPV of starting the brewery?
d.What is the IRR?
e.Do the NPV and IRR decision making rules agree?
f.Sensitivity analysisi.Construct a cost of capital sensitivity table for all valuation types with costs of capital ranging from 11% to 15% in increments of 0.5%. That is fill in the following chart:Build OPTION COST OF CAPITAL SENSITIVTYCost of Capital11.0%11.5%12.0%12.5%13.0%13.5%14.0%14.5%15.0%NPVi.Construct 3×3 NPV and IRR Sensitivity Analyses reflecting the following informationBUILD OPTION (A) NPV SENSITIVITYBrewing ingredient costs30%40%50%Increase in restaurant sales0%15%30%3)Assuming the worst outcome for the craft brewery project (outcome A), which option should Upland choose: do nothing, lease to Diamond event, or open craft brewery? Why?
4)Assuming a good outcome for the craft brewery (outcome B), which of the two options (B.1. or B.2.) offers most value? Executive SummaryPrepare a short (less than 1 page) executive summary that lays out major assumptions you used and what decision you have arrived at: should you go ahead with the leasing option, the craft brewery option, or leave the small building idle
