Question 6

PQR Ltd. is assessing the viability of a new warehouse project with an expected life of 10 years. The initial cost is $3 million, and additional expenses of $200,000 will be incurred at the end of the fifth year. The warehouse will generate annual rental income of $500,000, with annual operating expenses of $150,000. The building is expected to have a salvage value of $500,000 at the end of the project. The company’s tax rate is 22%, and the required rate of return is 10%.

Requirements:

1. Calculate the NPV of the project.
2. Determine the IRR.
3. Calculate the payback period.
4. Assess the impact of a 10% decrease in rental income on the NPV.
5. Provide a recommendation on whether to proceed with the project.