Trips Logistics
Discounted Cash Flows—Trips Logistics
Demand 100,000 units
Revenue per Unit 1.22$
Warehouse Space 1,000 sq ft per 1000 units
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$
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$
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 = $5,471
Trips Logistics Decision Tree—Not Signing a Lease and Using the Spot Market
Node
Node
Leased
Space
Warehouse
Space at Spot
Price
Revenue Cost Profit
D P 1.22 C(D=, p=, 2) P(D=,p=,2)
144,000 1.45 100,000 44,000 175,680$ 163,800$ 11,880$
144,000 1.19 100,000 44,000 175,680$ 152,360$ 23,320$
144,000 0.97 100,000 44,000 175,680$ 142,680$ 33,000$
96,000 1.45 100,000 – 117,120$ 100,000$ 17,120$
96,000 1.19 100,000 – 117,120$ 100,000$ 17,120$
96,000 0.97 100,000 – 117,120$ 100,000$ 17,120$
64,000 1.45 100,000 – 78,080$ 100,000$ (21,920)$
64,000 1.19 100,000 – 78,080$ 100,000$ (21,920)$
64,000 0.97 100,000 – 78,080$ 100,000$ (21,920)$
EP(D=,p=,1)
Warehouse
Space at Spot
price
P(D=,p=,1)
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 = $38,364
Node
Node
Trips Logistics Decision Tree—Fixed Lease Option
Leased
Space
Warehouse
Space at Spot
Price
Revenue Cost Profit
D P 1.22 C(D=, p=, 2) P(D=,p=,2)
144,000 1.45 100,000 44,000 175,680$ 163,800$ 11,880$
144,000 1.19 100,000 44,000 175,680$ 152,360$ 23,320$
144,000 0.97 100,000 44,000 175,680$ 142,680$ 33,000$
96,000 1.45 96,000 0 117,120$ 96,000$ 21,120$
96,000 1.19 96,000 0 117,120$ 96,000$ 21,120$
96,000 0.97 96,000 0 117,120$ 96,000$ 21,120$
64,000 1.45 64,000 0 78,080$ 64,000$ 14,080$
64,000 1.19 64,000 0 78,080$ 64,000$ 14,080$
64,000 0.97 64,000 0 78,080$ 64,000$ 14,080$
EP(D=,p=,1)
Warehouse
Space at $1
Warehouse
Space at Spot
price
P(D=,p=,1)
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
Node
Node
Trips Logistics Decision Tree—Flexible Lease Option