This project requires two stages for completion – first you are to act as a
consultant and second you will take on the role of a mayor who has to
communicate the action plan as a result of the consultant recommendation.
Part A: Consultant
1. You are employed as a consultant for a city that is investigating the
possibility of building a convention center to attract tourists. Provide your
recommendation to the mayor’s office regarding the construction of the
center. (One recommended source for your work is a report by Professor
Heywood Sanders, produced for the Brookings Institute. The report
contains information about the demand for conventions and the supply of
convention centers, and is provided as a link below.) I have also included
some additional references to assist you with this project. You are required
to find two additional sources to use in your analysis. Conflicting sources
are also acceptable so long as they use sound economics in the analysis.
2. Students are required to submit a one-page executive summary with a
recommendation for or against the project and you must defend your
decision using economic arguments/data. A single page forces students
to be concise and to think clearly about what they want to say. Use the
tools that you have learned in the course for full credit (opportunity cost for
example). Students may not submit more than the one page executive
summary. References should be listed on a separate page.
Part B: City Mayor
1. You are the Mayor of the city who is tasked with the job of conveying the
final decision on the convention center project to residents and
stakeholders. You must discuss both the decision itself and the
justification for the decision. Utilizing evidence and data provided by the
consultant, a successful communiqué should be informative and
persuasive such that residents and stakeholders ultimately support the
2. For this portion of the assignment, students are required to submit a onepage press release. Students may not submit more than the one page.
Note: Your submission should be no longer than three pages – one page
for the consultants executive summary, a reference page, and the one
page press release.
THE DECISION TO LEASE OR BUY AT WARF
Warf Computers has decided to proceed with the manufacture and
distribution of the virtual keyboard (VK) the company has developed. To
undertake this venture, the company needs to obtain equipment for the
production of the microphone for the keyboard. Because of the
required sensitivity of the microphone and its small size, the company needs
specialized equipment for production.
Nick Warf, the company president, has found a vendor for the equipment.
Clapton Acoustical Equipment has offered to sell Warf Computers the
necessary equipment at a price of $6.1 million. Because of the rapid
development of new technology, the equipment falls in the three-year MACRS
depreciation class. At the end of four years, the market value of the equipment
is expected to be $780,000.
Alternatively, the company can lease the equipment from Hendrix Leasing.
The lease contract calls for four annual payments of $1.48 million due at the
beginning of the year. Additionally, Warf Computers must make a security
deposit of $400,000 that will be returned when the lease expires. Warf
Computers can issue bonds with a yield of 11 percent, and the company has a
marginal tax rate of 21 percent.
1. Should Warf buy or lease the equipment?
2. In the leasing discussion, James informs Nick that the contract could
include a purchase option for the equipment at the end of the lease.
Hendrix Leasing offers three purchase options:
a. An option to purchase the equipment at the fair market value.
b. An option to purchase the equipment at a fixed price. The price will be
negotiated before the lease is signed.
c. An option to purchase the equipment at a price of $250,000.
How would the inclusion of a purchase option affect the value of the lease?
3. James also informs Nick that the lease contract can include a cancellation
option. The cancellation option would allow Warf Computers to cancel the
lease on any anniversary date of the contract. To cancel the lease, Warf
Computers would be required to give 30 days’ notice prior to the
anniversary date. How would the inclusion of a cancellation option affect
the value of the lease?
Purchase answer to see full attachment