You need to know whether the building of a new warehouse is justified under the following conditions.

Question:

You need to know whether the building of a new warehouse is justified under the following conditions.
■ The proposal is for a warehouse costing $250,000.
■ The warehouse has an expected useful life of 35 years and a net (net proceeds from sale after tax adjustments) of $50,000.
■ Annual receipts of $67,000 are expected, annual maintenance and administrative costs will be $ 12,000/year, and annual income taxes are $15,000.
Given the foregoing data, which of the following statements are correct?
(a) The proposal is justified for a of 15%.
(b) The proposal has a net present worth of -$50,254 when 20% is used as the interest rate.
(c) The proposal is acceptable, as long as < 15.93%.
(d) All of the preceding are correct.
Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important... MARR
Minimum Acceptable Rate of Return (MARR), or hurdle rate is the minimum rate of return on a project a manager or company is willing to accept before starting a project, given its risk and the opportunity cost of forgoing other...