Trips Logistics

Discounted Cash Flows—Trips Logistics

Demand 100,000
Revenue per Unit $ 1.22
Warehouse Space 1,000
Lease Cost $ 1.00
Spot Market Cost $ 1.20
Discount Rate 0.10

Expected Annual Profit if Warehousing Spacee Is Obtained from Spot Market $ 2,000
NPV of No Lease $ 5,471

Expected Annual Profit with Three Year Lease $ 22,000

NPV of Lease $ 60,182
units

sq ft per 1000 units

 Trips Logistics Decision Tree—Not Signing a Lease and Using the Spot Mar

Node Revenue Cost Profit

D P 1.22 C(D=, p=, 2) P(D=,p=,2)
144,000 1.45 $ 175,680 $ 208,800 $ (33,120)
144,000 1.19 $ 175,680 $ 171,360 $ 4,320
144,000 0.97 $ 175,680 $ 139,680 $ 36,000
96,000 1.45 $ 117,120 $ 139,200 $ (22,080)
96,000 1.19 $ 117,120 $ 114,240 $ 2,880
96,000 0.97 $ 117,120 $ 93,120 $ 24,000
64,000 1.45 $ 78,080 $ 92,800 $ (14,720)
64,000 1.19 $ 78,080 $ 76,160 $ 1,920
64,000 0.97 $ 78,080 $ 62,080 $ 16,000

Node EP(D=,p=,1) P(D=,p=,1)

D P
120,000 1.32 ($12,000) ($22,909)
120,000 1.08 $16,800 $32,073
80,000 1.32 ($8,000) ($15,273)
80,000 1.08 $11,200 $21,382

Period 0 Profit = $5,471

nd Using the Spot Market
 Trips Logistics Decision Tree—Fixed Lease Option

Warehouse
Leased
Node Space at Spot Revenue Cost
Space Price
D P 1.22 C(D=, p=, 2)
144,000 1.45 100,000 44,000 $ 175,680 $ 163,800
144,000 1.19 100,000 44,000 $ 175,680 $ 152,360
144,000 0.97 100,000 44,000 $ 175,680 $ 142,680
96,000 1.45 100,000 - $ 117,120 $ 100,000
96,000 1.19 100,000 - $ 117,120 $ 100,000
96,000 0.97 100,000 - $ 117,120 $ 100,000
64,000 1.45 100,000 - $ 78,080 $ 100,000
64,000 1.19 100,000 - $ 78,080 $ 100,000
64,000 0.97 100,000 - $ 78,080 $ 100,000

Warehouse
Node EP(D=,p=,1) Space at Spot P(D=,p=,1)
price
D P
120,000 1.32 $17,360 20,000 $35,782
120,000 1.08 $22,640 20,000 $45,382
80,000 1.32 ($2,400) - -$4,582
80,000 1.08 ($2,400) - -$4,582

Period 0 Profit = $38,364

ption

Profit

P(D=,p=,2)
$ 11,880
$ 23,320
$ 33,000
$ 17,120
$ 17,120
$ 17,120
$ (21,920)
$ (21,920)
$ (21,920)
 Trips Logistics Decision Tree—Flexible Lease Option

Warehouse
Leased
Node Space at Spot Revenue Cost
Space Price
D P 1.22 C(D=, p=, 2)
144,000 1.45 100,000 44,000 $ 175,680 $ 163,800
144,000 1.19 100,000 44,000 $ 175,680 $ 152,360
144,000 0.97 100,000 44,000 $ 175,680 $ 142,680
96,000 1.45 96,000 0 $ 117,120 $ 96,000
96,000 1.19 96,000 0 $ 117,120 $ 96,000
96,000 0.97 96,000 0 $ 117,120 $ 96,000
64,000 1.45 64,000 0 $ 78,080 $ 64,000
64,000 1.19 64,000 0 $ 78,080 $ 64,000
64,000 0.97 64,000 0 $ 78,080 $ 64,000

Warehouse
Warehouse
Node EP(D=,p=,1) Space at Spot P(D=,p=,1)
Space at $1 price
D P
120,000 1.32 $19,360 100,000 20,000 $37,600
120,000 1.08 $24,640 100,000 20,000 $47,200
80,000 1.32 $17,600 80,000 0 $33,600
80,000 1.08 $17,600 80,000 0 $33,600

Period 0 Profit = $56,545

ption

Profit

P(D=,p=,2)
$ 11,880
$ 23,320
$ 33,000
$ 21,120
$ 21,120
$ 21,120
$ 14,080
$ 14,080
$ 14,080