3. The G&K Corporation is planning to expand one of its warehouse. Total firstcosts is: the land costs $250,000; the building costs $ 650,000, the equipmentcosts $ 200.000 and a $ 150,000 start-up cost. Expected net revenues are$6000,000/year for 10 years at which time the land and building can be sold for$475,000. and the equipment for $50,000. Annual cost are $350,000. What is theIRR for this investment? If the company requires a MARR of 15% determine ifthey should expand the warehouse or not?

IRR is also known as internal rate of return. It is a capital budgeting technique which helps in…

Answered: The G&K Corporation is planning to…

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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A company is considering constructing a plant to manufacture a proposed new product. The land costs $300,000, the building costs $600,000, the equipment costs $250,000, and $71,321 additional working capital is required. It is expected that the product will result in sales of $750,000 per year for 10 years, at which time the land can be sold for $400,000, the building for $350,000, and the equipment for $50,000. All of the working capital would be recovered at the EOY 10. The annual expenses for labor, materials, and all other items are estimated to total $475,000. If the company requires a MARR of 15% per year on projects of comparable risk, determine the AW of the entire cash flow diagram.
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