MD-Grow (MDG) is medical cannabis grower headquartered near Annapolis, MD. Management is considering whether they should invest in a new high-tech greenhouse or whether they should renew their lease on the 30,000 square foot warehouse where they currently grow their product. Current Warehouse Costs MDG currently pays $500,000 per year in rent for their warehouse space, but due to competition and pressure from the local community, the landlord has requested a rent increase to $550,000 per year for the next five years. Additionally, the major cost related to growing cannabis in a warehouse is utility costs. MDG estimates that their current utilities related to the grow operation are $1.65 million per year and forecast that this should remain steady over the next five years. Proposed Greenhouse Investment To move MDG's grow operation from their current warehouse to a greenhouse, they will need to purchase a plot of land. MDG has identified a 5-acre plot that they can purchase for $1.1 million. The cost of building the 30,000 square foot green house is $2.3 million, and additional construction needed to make the land suitable for the grow operation is estimated to be $450,000. The greenhouse company estimates that the average cannabis company will save 40 to 60% on their utility usage. However, the state-of-the-art equipment require annual maintenance of $65,000 per year more than the maintenance costs of the current warehouse MDG also estimates the cost of owning the greenhouse and land including property taxes and other expenses will be about $100,000 per year more than the warehouse space. Additional Information: Each option has a five-year useful life. MDG uses a 12% hurdle rate to evaluate all their projects. MDG will receive $130,000 in salvage values should they sell their warehouse equipment to move to the greenhouse. If they stay in the warehouse, this equipment will be used up over the next five years and have not salvage value. The greenhouse is projected to have a $175,000 salvage value at the end of five years. No additional working capital will be tied up due to the investment in the greenhouse. All acquisition costs, expect land qualify for modified accelerated depreciation (MACRS) of 50, 30, and 20% in the first three years of the project Remember that land does not depreciate MD is a profitable company and any income or cost savings would be taxed at MDG's tax rate of 25% All dollar values referenced in this case are in nominal dollars. For your analysis, ignore the effect of inflation Given the data provided, use NPV analysis to determine whether MDG should invest in the greenhouse project. Since the cost savings from the greenhouse are given as a range, make a high, midpoint, and low assessment of the project. Calculate the IRR and Payback period for at least the midpoint estimate. MD-Grow (MDG) is medical cannabis grower headquartered near Annapolis, MD. Management is considering whether they should invest in a new high-tech greenhouse or whether they should renew their lease on the 30,000 square foot warehouse where they currently grow their product. Current Warehouse Costs MDG currently pays $500,000 per year in rent for their warehouse space, but due to competition and pressure from the local community, the landlord has requested a rent increase to $550,000 per year for the next five years. Additionally, the major cost related to growing cannabis in a warehouse is utility costs. MDG estimates that their current utilities related to the grow operation are $1.65 million per year and forecast that this should remain steady over the next five years. Proposed Greenhouse Investment To move MDG's grow operation from their current warehouse to a greenhouse, they will need to purchase a plot of land. MDG has identified a 5-acre plot that they can purchase for $1.1 million. The cost of building the 30,000 square foot green house is $2.3 million, and additional construction needed to make the land suitable for the grow operation is estimated to be $450,000. The greenhouse company estimates that the average cannabis company will save 40 to 60% on their utility usage. However, the state-of-the-art equipment require annual maintenance of $65,000 per year more than the maintenance costs of the current warehouse MDG also estimates the cost of owning the greenhouse and land including property taxes and other expenses will be about $100,000 per year more than the warehouse space. Additional Information: Each option has a five-year useful life. MDG uses a 12% hurdle rate to evaluate all their projects. MDG will receive $130,000 in salvage values should they sell their warehouse equipment to move to the greenhouse. If they stay in the warehouse, this equipment will be used up over the next five years and have not salvage value. The greenhouse is projected to have a $175,000 salvage value at the end of five years. No additional working capital will be tied up due to the investment in the greenhouse. All acquisition costs, expect land qualify for modified accelerated depreciation (MACRS) of 50, 30, and 20% in the first three years of the project Remember that land does not depreciate MD is a profitable company and any income or cost savings would be taxed at MDG's tax rate of 25% All dollar values referenced in this case are in nominal dollars. For your analysis, ignore the effect of inflation Given the data provided, use NPV analysis to determine whether MDG should invest in the greenhouse project. Since the cost savings from the greenhouse are given as a range, make a high, midpoint, and low assessment of the project. Calculate the IRR and Payback period for at least the midpoint estimate