Chapter 26, Problem 5MAD

Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to service its east coast stores based on the following estimates:

1. a. Determine the net present value of building the warehouse, assuming a construction cost of $20,000,000, an annual net cost savings of $4,000,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A.
2. b. Determine the net present value of building the warehouse, assuming a construction cost of $25,000,000, an annual net cost savings of $2,500,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A.
3. c. Interpret the results of parts (a) and (b).