1. Retail Renovators is considering 2 INDEPENDENT alternative spaces to renovate
ID: 2652653 • Letter: 1
Question
1. Retail Renovators is considering 2 INDEPENDENT alternative spaces to renovate. They can renovate, both, either one, or neither of the spaces. Costs are shown below. Since the profitable life of a retail store is short, use a shorter 6-year planning horizon for each alternative and assume that the salvage values are the same in year 6 as at the end of their lives. Use present worth analysis to determine which spaces if any to purchase, assuming MARR is 20%. Strip mall Enclosed mall Initial renovation cost $1,500,000 $2,000,000 Annual revenues $400,000 $500,000 Annual maint. cost $120,000 $100,000 Salvage value $300,000 $1,400,000 Life, years 25 35 A. Fill in the costs and find the present worth of each alternative: B. Do they invest in the Strip mall? Do they invest in the Enclosed mall? Interest = Strip Mall Maintenance Year Purchase cost Revenues cost Salvage Total cash flow 0 1 2 3 4 5 6 NPV = Enclosed Mall Maintenance Year Purchase cost Revenues cost Salvage Total cash flow 0 1 2 3 4 5 6 NPV = 1. Retail Renovators is considering 2 INDEPENDENT alternative spaces to renovate. They can renovate, both, either one, or neither of the spaces. Costs are shown below. Since the profitable life of a retail store is short, use a shorter 6-year planning horizon for each alternative and assume that the salvage values are the same in year 6 as at the end of their lives. Use present worth analysis to determine which spaces if any to purchase, assuming MARR is 20%. Strip mall Enclosed mall Initial renovation cost $1,500,000 $2,000,000 Annual revenues $400,000 $500,000 Annual maint. cost $120,000 $100,000 Salvage value $300,000 $1,400,000 Life, years 25 35 A. Fill in the costs and find the present worth of each alternative: B. Do they invest in the Strip mall? Do they invest in the Enclosed mall? Interest = Strip Mall Maintenance Year Purchase cost Revenues cost Salvage Total cash flow 0 1 2 3 4 5 6 NPV = Enclosed Mall Maintenance Year Purchase cost Revenues cost Salvage Total cash flow 0 1 2 3 4 5 6 NPV =Explanation / Answer
Answer..
note: company can prefer strip mall, because having the possitive net present value
strip mall years purchases cost revenue maintenance cost salvage pv.factor@20% inflow 0 -1500000 0 0 0 0 -1500000 1 400000 120000 0.83333 433331.6 2 400000 120000 0.69444 361108.8 3 400000 120000 0.5787 300924 4 400000 120000 0.48225 250770 5 400000 120000 0.40187 208972.4 6 400000 120000 300000 0.33489 174142.8 NPV 229249.6Related Questions
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