I. Economic Benefits
Leasing
The first and most obvious benefit of leasing the space is the significantly lower capital expenditure at period zero. The capital expenditure for the leasing project is more than half of that of the building a business project. This means that there are less upfront payments as well as less potential debt. Additionally, the guaranteed lease payments indicate a consistent cash flow for the hotel regardless of the success of the pub venture. In comparison, depreciation is also lower from a leasing standpoint due to the lower initial capital expenditure. As the main responsibility of running the business is outsourced to the leasing company, this initiative also incurs less annual costs in terms of raw materials needed to run the business in addition to less operating expenses for the hotel. This situation proves to be a very safe investment for the hotel, as they are taking on minimal costs and have a guaranteed income of capital through the lease payments.
Building
This initiative proves to be more risky than leasing; nonetheless offers a higher return. The initial capital expenditure is double that of leasing the space, however it does give the hotel full earnings of all future revenue. While incurring additional raw material and operating costs throughout the year, this initiative does prove to be more expensive with a higher degree of labor required. That being said, if run properly the venture is projected to turn a much higher profit when compared with the leasing option. Operating cash flows are projected to double that of the leasing option in the first year alone as well as continue to increase as the years go on. In addition to the immediate profit, by building a business, the hotel will not only has full say over all aspects of the pub, but will also be able to benefit from the profits in the years to come, as