Petes Plumbing Supplies would like to expand into a new warehouse at a cost of ($500,000.) The
Question:
Pete’s Plumbing Supplies would like to expand into a new warehouse at a cost of \($500,000.\) The warehouse is expected to have a life of 20 years, and a salvage value of \($100,000.\) Annual costs for maintenance, insurance, and other cash expenses will total \($60,000.\) Annual net cash receipts resulting from this expansion are predicted to be \($115,000.\) The company’s required rate of return is 12 percent.
Required
a. Find the net present value of this investment using the format presented in Table 8.3. Round to the nearest dollar.
b. Should the company purchase the new warehouse? Explain.
c. Provide one qualitative factor that might cause the company to reach a different conclusion than the one reached in requirement b.
Table 8.3
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