Question
You are working as an engineering manager for Amazon and you are planning to buy a warehouse that will cost $400,000. Now, 30% of this
You are working as an engineering manager for Amazon and you are planning to buy a warehouse that will cost $400,000. Now, 30% of this investment will come from a 5-year loan with an annual effective interest rate of 7%. Annual expenditure for operations and maintenance for this warehouse is $ 100,000 and it increases by 10% each year. The expected annual revenue is $200,000 which will increase by 5% until disposal. This warehouse also qualifies to be a 3 years MACRS property which will be retired at the end of the 5th year. Interestingly you managed to find another manager willing to buy your warehouse for $32,500 after 5 years. You settled that deal since your market value will be more than the actual salvage value which will be zero after the full 3 years of MACRS depreciation accumulation. The MARR after tax is given as 15% and the income tax rate is 25%. Find IRR from the total cash flow. [15 pts]. If the IRR is 5.5% enter 5.5 only (Pay attention to MACRS)
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