Due to growing membership, a food hub in Western Georgia is considering building a refrigerated warehouse for produce. The new facility would increase annual operating expenses by $18,600 due to utilities, maintenance, and additional labor. The increased capacity and improved produce shelf life from the facility will help the food hub increase operating receipts by $64,000 per year. The refrigerated warehouse would be 3000 square feet and it would cost $150 per square foot to build. Suppose that the food hub wanted to evaluate this investment over a ten-year period of time. The food hub anticipates that the cold storage facility could be sold for $320,000 in ten years. The food hub expects that its marginal tax rate over the next eleven years will be 15%. The IRS will allow the food hub to depreciate the investment using straight-line over 30 years. Assume that the terminal value of this investment is $320,000 at the end of ten years. The food hub will require an 8% return to capital (pretax).

(i) Calculate the Initial Cost

a. $400,000

b. $450,000

c. $320,000

d. $520,000

(ii) Calculate the after tax- net returns

a. $38,590

b. $36,320

c. $45,400

d. $64,000

(iii) Calculate the tax savings from depreciation

a. $2,250

b. $15,000

c. $3,000

d. $4,500

(iv) Calculate the after-tax terminal value

a. $294,500

b. $316,000

c. $320,000

d. $317,000

(v) Which discount rate should be used for calculating the NPV of this investment?

a. 7.5% b. 6.8%

c. 6.4% d. 8%

(vi) What is the NPV?

a. $5,258

b. $8,000

c. $3,923

d. $3,704