Assume Home Garden Inc. in MAD 26-5 assigns the following probabilities to the estimated construction cost of
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Assume Home Garden Inc. in MAD 26-5 assigns the following probabilities to the estimated construction cost of the warehouse and annual net cash flows:
a. Compute the expected value of the construction cost.
b. Compute the expected value of the annual net cash flows.
c. Determine the expected net present value of building the distribution warehouse, assuming a desired rate of return of 14% and using the expected values computed in parts (a) and (b). Use the present value tables provided in Appendix A. Round to the nearest dollar.
d. Based on your results in part (c), should Home Garden Inc. build the distribution warehouse?
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