Question
SouthWest Developers has designed an apartment building that will cost $7 million and produce after-tax cash inflows of $1.5 million for each year of its
SouthWest Developers has designed an apartment building that will cost $7 million and produce after-tax cash inflows of $1.5 million for each year of its 10 year life. The firm also has plans for a recreation center that would cost $3.2 million and produce after-tax cash flows of $600,000 per year for 10 years. The firm owns land near Los Angeles and must decide which project to build. The land is large enough to accommodate both projects. SouthWest believes that if both projects are built next to each other, the residents of the apartment building will use the recreation center and increase its expected cash inflows to $700,000 per year. If the opportunity cost of capital is 14 percent, what should the company do?
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