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A retailer company is considering to invest in a distribution center (DC) that serves the east coast. The initial investment is $4,500,000 dollars and the
A retailer company is considering to invest in a distribution center (DC) that serves the east coast. The initial investment is $4,500,000 dollars and the company will make a down payment of 30%, the rest will be financed with a bank loan at 6% interest rate compounded semiannually to be paid with 20 equal semiannual payments. The annual operating costs estimated for the first year are $420,000, which will increase 5% per year during the next 9 years. The company estimates that the DC will generate annual savings in the transportation costs of $1,200,000 during the first year, and that they will increase at a rate of 3% per year during the life of the project. The distribution center will be sold at the end of the 10^th year at a salvage value of 20% of the original cost. The company MARR is 12%. Perform an investment analysis and make a recommendation to the company about the economical feasibility of investment in the DC. Your analysis must include the following measures of worth: Present worth Annual worth Future worth External rate of return
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