Break the lease, move, lose a month, then save — and why this answer is provisional

Harbourline’s warehouse

Harbourline Logistics leases a warehouse in Hamilton with four years left on the lease at 300,000 a year. A newer site near the highway is available at 240,000 a year on a four-year lease. Moving would involve:

• a break penalty on the current lease of 90,000;
• moving costs — racking, trucks, IT — of 60,000;
• a transition month in which the operation runs at half capacity, losing 35,000 of contribution;
• retention bonuses of 25,000 to keep the warehouse crew through the move.

Four cost heads, all one-time, all relevant: each is future, and each is incurred only if Harbourline moves. Against them, the move saves 60,000 a year of rent (300,000 − 240,000) for four years.

The trap in the rent

The remaining rent on the old lease — 4 × 300,000 = 1,200,000 — is not a cost of moving. It is the cost of staying. If Harbourline moves, it does not pay it; the 90,000 penalty replaces it. The relevant comparison is the rent under each alternative — 1,200,000 if it stays, 960,000 plus the penalty if it goes — and the 60,000-a-year saving is that difference. A learner who adds the old rent to the moving side has counted the cost of staying as a cost of leaving.

Undiscounted

One-time costs (t0)
  Break penalty                    90,000
  Moving costs                     60,000
  Lost contribution, transition    35,000
  Retention bonuses                25,000
  Total one-time                  210,000

Annual saving (t1–t4)     60,000 × 4 = 240,000

Net differential (undiscounted)    +30,000  → move

Sum the savings, subtract the one-time costs, and the move is worth 30,000. Rework it with a 120,000 break penalty and the net is exactly 0 — the move is a wash. That sensitivity is worth stating: the decision turns on the penalty the landlord will actually accept.

Why this answer is provisional

The worksheet above treats a dollar of rent saved in year 4 as worth the same as a dollar of penalty paid today. It is not. The 210,000 leaves now; the 240,000 arrives 60,000 at a time over four years, and Harbourline requires a 10 % return on money it ties up. Discounted at that rate, four annual savings of 60,000 are worth about 190,000 today — less than the 210,000 they are meant to repay — and the decision reverses. Lesson 13.6 returns to these exact figures with the discount table and shows the working; this lesson’s job is the undiscounted layout and the sentence that says it is not the last word.

The habit the final rewards: whenever costs and savings fall in different years, lay the decision out undiscounted so every flow is visible and its timing is clear, then say that the discounted figure is the one to decide on. The undiscounted +30,000 is a first answer. The course says explicitly that the second answer is the right one.

The memo

A one-paragraph recommendation has five parts: the differential figure (+30,000 undiscounted over four years) · its basis (four one-time heads totalling 210,000 against 60,000 a year of rent saved) · one qualitative caveat (customer service during the transition month, the crew’s willingness to move, the new site’s capacity for growth) · the reason the figure is provisional (the savings are later than the costs) · a conditional recommendation: proceed only if the discounted figure is still positive.