Please show your work! Thanks You are considering relocating your outdoor-equipm
ID: 1090718 • Letter: P
Question
Please show your work!
Thanks
You are considering relocating your outdoor-equipment manufacturing plant and have narrowed your choices to four possible locations based on the availability of high quality labor, rail transportation, and an adequate distribution network. Based on the following costs and benefits associated with each location use incremental analysis and IRR to choose the most cost-effective location assuming MARR 18%. Portland, Bend, OR Boise, ID Seattle OR WA. Initial cost $1,300,000 $1,700,000 $1,100,000 $1,900,000 Year 0) Annual 500,000 1,000,000 400,000 1,100,000 operations and maintenance costs (Years 1 thru 20) Annual gross 800,000 1,375,000 625,000 1,500,000 benefits ears 1 thru 20)Explanation / Answer
Based on NPV incremental analysis, the best location is "Bend, OR" because of higher positive NPV.
Based on IRR, "Portland, OR" will be preferred because of higher IRR.
Particulars Portland, OR Bend, OR Boise, ID Seattle, WA Initial Cost $ 1,300,000.00 $ 1,700,000.00 $ 1,100,000.00 $ 1,900,000.00 Annual Gross Benefits $ 800,000.00 $ 1,375,000.00 $ 625,000.00 $ 1,500,000.00 Less: Annual Operation and maintenance costs $ (500,000.00) $ (1,000,000.00) $ (400,000.00) $ (1,100,000.00) Net Annual Benefits $ 300,000.00 $ 375,000.00 $ 225,000.00 $ 400,000.00 Annuity P.V. factor of 18% for 20 years 5.3527 5.3527 5.3527 5.3527 P.V. of annual benefits $ 1,605,810.00 $ 2,007,262.50 $ 1,204,357.50 $ 2,141,080.00 NPV relocating project = P.V. of benefits - Initial Investment $ 305,810.00 $ 307,262.50 $ 104,357.50 $ 241,080.00 IRR (By finding value of rate in Annuity P.V. factor formula) 22.69% 21.62% 19.91% 20.55%