Question
Warehouse Services would like to spend $221,000 to expand its warehouse. However, the company has a loan outstanding that must be repaid in 2.5 years
Warehouse Services would like to spend $221,000 to expand its
warehouse. However, the company has a loan outstanding that must be
repaid in 2.5 years and thus will need the $221,000 at that time. The
warehouse expansion project is expected to increase the cash inflows by
$58,000 in the first year, $139,000 in the second year, and $210,000 a
year for the following 2 years. Should the firm expand at this time?
Why or why not?
a. No, because the project never pays back
b. No, because the money will not be recovered in time to repay
the loan
c. Yes, because the money will be recovered in 1.69 years
d. Yes, because the money will be recovered in 1.87 years
e. Yes, because the money will be recovered in 2.11 years
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