Exercise 12-35 Cash Flow Analysis; NPV; Spreadsheet Analysis; Double-Declining-Balance (DDB) Depreciation Using the VDB Function in Excel [LO 12-3, 12-4] Lou Lewis, the president of Lewisville Company, has asked you to give him an analysis of the best use of a warehouse the company owns. a. Lewisville Company is currently leasing the warehouse to another company for $6,800 per month on a year-to-year basis. (Hint Use the PV function in Excel to calculate, on an after-tax basis, the PV of this stream of monthly rental receipts.) b. The warehouse's estimated sales value is $245,000. A commercial realtor believes that the price is likely to remain unchanged in the near future. The building originally cost $69,000 and is being depreciated at $2,400 annually. Its current net book value (NBV) is $8,400. c. Lewisville Company is seriously considering converting the warehouse into a factory outlet for furniture. The remodeling will cost $190,000 and will be modest because the major attraction will be rock-bottom prices. The remodeling cost will be depreciated over the next 5 years using the double-declining-balance method. (Note: Use the VDB function in Excel to calculate depreciation charges. The advantage of using the VDB, rather than the DDB, function is that there is a (default) option in the former that provides an automatic switch to the straight-line method when it is advantageous to do so.) d. The inventory and receivables (net of current liabilities) needed to open and sustain the factory outlet would be $735,000. This total is fully recoverable whenever operations terminate. e. Lou is fairly certain that the warehouse will be condemned in 10 years to make room for a new highway. The firm most likely would receive $290,000 from the condemnation. f. Estimated annual operating data, exclusive of depreciation, are as follows: Sales (cash) Operating expenses $990,000 $590,000 g. Nonrecurring sales promotion costs at the beginning of year 1 (ie., time 0) are expected to be $127,000. (These costs are fully deductible for tax purposes.) h. Nonrecurring termination costs at the end of year 5 are $68,000. (These costs are fully deductible for tax purposes.) 1. The after-tax discount rate for capital budgeting purposes is 11%. (To calculate the present value factor for each year, //= 1, 5, use the following formula: PV factor, (1-1.114). The company is in the 42% tax bracket (federal and state combined).