Due to growing membership, a food hub in Western Georgia is considering building a refrigerated warehouse for produce. The new facility would increase real 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 real 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 real terminal value of this investment is $320,000 at the end of ten years. The food hub will require a 8% return to capital (pretax, has a risk premium of 2.5% and inflation is 3%.

(i) What is the after-tax, risk-adjusted discount rate?

a. 8.93% b. 6.8%

c. 11.98% d. 5.75%

(ii) What is the nominal after-tax net return at the end of year 5?

a. $52,631 b. $44,376

c. $44,736 d. $38,590

(iii) What is the annual tax saving?

a. $15,000 b. $12,750

c. $6,750 d. $2,250

(iv) What is the nominal after-tax terminal value?

a. $317,000 b. $430,053

c. $410,545 d. $371,000

(v) What is the present value of the nominal after-tax terminal value?

a. $212,642 b. $134,829

c. $164,190 d. $174,617

(vi) What is the NPV of this investment?

a. $26,491 b. $58,726

c. $96,489 d. -$52,206