Reference no: EM132717964
Problem - Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to service its east coast stores based on the following estimates:
Construction cost of warehouse $20,000,000 to $25,000,000
Residual value $3,000,000
Useful life 25 years
Estimated annual net cost savings $2,500,000 to $4,000,000
a. Determine the net present value of building the warehouse, assuming a construction cost of $20,000,000, an annual net cost savings of $4,000,000, and a desired rate of return of 14%.
b. Determine the net present value of building the warehouse, assuming a construction cost of $25,000,000, an annual net cost savings of $2,500,000, and a desired rate of return of 14%.
c. Interpret the results of parts (a) and (b).
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