Question

business fundamentals class

Question 2 (1 point) Quantum Logistics Inc. a wholesale distriubtor, is considering the construction of a new warehouse to serve the southeastern geographic region near the Alabam- Georgia border. There are three cities being considered. After site visits and a budget analysis, the expected income and costs associated with locating in each of the cities have been determined. The life of the warehouse is expected to be 12 years and MARR is 15%/yr. Based on an internal rate of return analysis, which city should be recommended and what is it's IRR? Remember, you have to use incremental analysis when you perform Rate of Return Analysis on multiple alternatives. Net City Initial Cost Annual Income Lagrange$1,260,000$480,000 Auburn $1,000,000$410,000 Anniston$1,620,000$520,000 Lagrange - IRR = 40% Lagrange - IRR = 37% Auburn - IRR =40% Anniston - IRR = 31%

Answer 1

Lagrange

PVF@ 37% PVF @ 38% Year CashFlow DCF DCF -$12,60,000.00 1-$12,60,000.00 2.6409 $12,67,622.16 1-$12,60,000.00 2.5764 $12,36,678.47 0 01-12 $4,80,000.00 NPV $7,622.16 -$23,321.53 On interpolating IRR 37 % +[ 7622.16 (7622.16 +23321.53)] IRR 37 % [ 7622.16 30943.69 ] IRR 37%+0.24% IRR 37.2400% 37.24%

Auburn

PVF @ 40% PVF @ 41% Year CashFlow DCF DCF -$10,00,000.00 01-12 $4,10,000.00 NPV 1-$10,00,000.00 2.4559 $10,06,920.46 $6,920.46 1-$10,00,000.00 0 2.3995 $9,83,805.38 -$16,194.62 On interpolating IRR 40% +[6920.46 (6920.46 +16194.62)] IRR 40% 6920.46 23115.08] IRR 40%+0.299% 40.30% IRR 40.2990%

Anniston

PVF@31% PVF@ 30% Year CashFlow DCF DCF -$16,20,000.00 $5,20,000.00 1-$16,20,000.00 3.0995 $16,11,746.47 1-$16,20,000.00 0 01-12 3.1903 $16,58,935.23 $38,935.23 NPV -$8,253.53 On interpolating IRR 31 %- [ 8253.53 (8253.53 38935.23)] IRR = 31 %- [ 8253.53/47188.76] IRR 31 %0.1749% IRR 30.83% 30.8251%