finance Clem\'s Antiques is now considering expanding into new market areas. It

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finance Clem's Antiques is now considering expanding into new market areas. It is considering opening two new warehouse locations in order to serve its customers in the north and west. Unfortunately, the company only has sufficient amount of funds to invest into only one warehouse location. The warehouses will require that a new building be constructed Clem's Antiques expects to use the warehouse for five (5) years before building a new production facility in that area. Outside market research revealed the following: North West $650,000 7% 45% 55% $100,000 $1,000,000 $125,000 Estimated first year revenue Estimated annual revenue growth Estimated variable costs $900,000 5% 55% Estimated contribution margin Estimated annual fixed costs Investment in facility Estimated salvage value in year 6 $120,000 $1,200,000 $120,000 Assume that the cost of capital problem. You exception of your TVM (time value appendix. Compute the Net Present Include the cash flows from the salvage value that will be received in year 6 in analysis. Evaluate the cash flow. Incorporate you into your document for support of your recommendation on which construct. Then perform a sensitivity analysis for both of capital and your contribution margin percents. Report the results of your analysis is 10%. You can ignore depreciation and taxes for this should round ALL of your computations to O decimal places, with the tion of your TVM (time value of money) factors from the tables located in the Value (NPV) for each warehouse consideration. year 6 into your aluate the cash flow. Incorporate your research findings, graphs or charts warehouse to your cost of your sensitivity warehouses by changing

Explanation / Answer

Computation of NPV of the Project North Year 0 1 2 3 4 5 Investment -1000000 Revenue 650000 695500 744185 796278 852017.4 Variable Cost -292500 -312975 -334883 -358325 -383408 Fixed Cost -100000 -100000 -100000 -100000 -100000 Salvage Value 125000 Cash Flows -1000000 257500 282525 309301.8 337952.9 493609.6 PVF @ 10% 1 0.909 0.826 0.751 0.683 0.621 PV of Cash flows -1000000 234067.5 233365.7 232285.6 230821.8 306531.5 NPV 237072 Computation of NPV of the Project West Year 0 1 2 3 4 5 Investment -1200000 Revenue 900000 945000 992250 1041863 1093956 Variable Cost -495000 -519750 -545738 -573024 -601676 Fixed Cost -120000 -120000 -120000 -120000 -120000 Salvage Value 120000 Cash Flows -1200000 285000 305250 326512.5 348838.1 492280 PVF @ 10% 1 0.909 0.826 0.751 0.683 0.621 PV of Cash flows -1200000 259065 252136.5 245210.9 238256.4 305705.9 NPV 100374

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