Question
The company you work for in pursuing a job building outdoor sheds for storing bicycles for commuters. The company is considering producing these sheds long
The company you work for in pursuing a job building outdoor sheds for storing bicycles for commuters. The company is considering producing these sheds long term but wants to run a test operation of these sheds. The company has two main options theyre considering: wooden sheds made with pressure treated wood, which cost a total of $200.0 each in raw wood to make, and steel sheds which cost a total of $303.9 each in raw steel. Each style of shed also costs a constant dollar value of $200 each to make. Its noted that the price of the raw wood is stated to inflate at 4.9% per year, while the price of raw steel is expected to increase at 2.8% per year. The company estimates they can make 20 of each shed each year and can sell those 20 sheds for $600 each for the wood sheds and $700 each for the steel ones. Due to space, they cant choose both of these options. If your MARRc is 20% and inflation is 3.5%:
A) Identify I, i*, and f
B) Draw out cash flow diagram for both of these options assuming you do these operations for 5 years
C) Determine the difference between the NPV of both options
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