A building company plans to build a new warehouse. The cost of building the warehouse is an initial investment of 1500 thousand dollars, together with a further 250 thousand dollars at the end of each of the next two quarters. The building company will need to cover quarterly operating cost of 120 thousand dollars at the end of each of the next two quarters (first and second). After completion of the construction by the end of the second quarter, the warehouse will be sold for 2.5 million dollars. Assuming that the annual interest rate is 4% compounded annually, find: (1) The present value of the building costs; (2) The present value of the operating costs; (3) The present value of the revenue; and (4) The internal rate of return of the project. (5) Do you think the company should carry out this project? Give your reason(s).
A building company plans to build a new warehouse. The cost of building the warehouse is an initial investment of 1500 thousand dollars, together with a further 250 thousand dollars at the end of each of the next two quarters. The building company will need to cover quarterly operating cost of 120 thousand dollars at the end of each of the next two quarters (first and second). After completion of the construction by the end of the second quarter, the warehouse will be sold for 2.5 million dollars. Assuming that the annual interest rate is 4% compounded annually, find: (1) The present value of the building costs; (2) The present value of the operating costs; (3) The present value of the revenue; and (4) The internal rate of return of the project. (5) Do you think the company should carry out this project? Give your reason(s).
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:A building company plans to build a new warehouse. The cost of building the warehouse
is an initial investment of 1500 thousand dollars, together with a further 250 thousand
dollars at the end of each of the next two quarters.
The building company will need to cover quarterly operating cost of 120 thousand
dollars at the end of each of the next two quarters (first and second). After completion
of the construction by the end of the second quarter, the warehouse will be sold for 2.5
million dollars. Assuming that the annual interest rate is 4% compounded annually, find:
(1) The present value of the building costs;
(2) The present value of the operating costs;
(3) The present value of the revenue; and
(4) The internal rate of return of the project.
(5) Do you think the company should carry out this project? Give your reason(s).
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