Quantum Logistics, Inc., a wholesale distributor, is considering the constructio
ID: 2740961 • Letter: Q
Question
Quantum Logistics, Inc., a wholesale distributor, is considering the construction of a new warehouse to serve the southeastern geographic region near the Alabama–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 %/year.
City
Initial Cost
Net Annual Income
a) What is the discounted payback period for each location?
Lagrange:
Auburn:
Anniston:
b) Which city should Quantum logistics slect if they wish to minimize DPBP?
c) Is this recommendation consistent with a present worth analysis recommendation?
City
Initial Cost
Net Annual Income
Lagrange $1,260,000 $480,000 Auburn $1,000,000 $410,000 Anniston $1,620,000 $520,000Explanation / Answer
a)
b)
Auburn has the lowest Discounted payback period of 3.2725 years and it should be selcted.
c)
Yes consistent, Present worth of Auburn city is more than the other cities.
Lagrange Year Cash Flow Discount @15% Discouted cash flows Cummulative discounted cash flows 0 -1260000 1 -1260000 -1260000 1 480000 0.869565217 417391.3043 -842608.7 2 480000 0.756143667 362948.9603 -479659.7 3 480000 0.657516232 315607.7916 -164051.9 4 480000 0.571753246 274441.5579 110389.61 5 480000 0.497176735 238644.8329 349034.45 6 480000 0.432327596 207517.246 556551.69 7 480000 0.37593704 180449.7792 737001.47 8 480000 0.326901774 156912.8514 893914.32 9 480000 0.284262412 136445.9578 1030360.3 10 480000 0.247184706 118648.6589 1149008.9 11 480000 0.214943223 103172.7469 1252181.7 12 480000 0.18690715 89715.43209 1341897.1 Present worth 4674019.2 Payback period = 3 years + 164051.9/274441.5579 = 3.597 years Auburn Year Cash Flow Discount @15% Discouted cash flows Cummulative discounted cash flows 0 -1000000 1 -1000000 -1000000 1 410000 0.869565217 356521.7391 -643478.3 2 410000 0.756143667 310018.9036 -333459.4 3 410000 0.657516232 269581.6553 -63877.7 4 410000 0.571753246 234418.8307 170541.13 5 410000 0.497176735 203842.4615 374383.59 6 410000 0.432327596 177254.3143 551637.9 7 410000 0.37593704 154134.1864 705772.09 8 410000 0.326901774 134029.7273 839801.82 9 410000 0.284262412 116547.5889 956349.41 10 410000 0.247184706 101345.7295 1057695.1 11 410000 0.214943223 88126.72131 1145821.9 12 410000 0.18690715 76631.93158 1222453.8 Present Worth 4983641.4 Payback period = 3 years + 63877.7/234418.8307 = 3.2725 years Anniston Year Cash Flow Discount @15% Discouted cash flows Cummulative discounted cash flows 0 -1620000 1 -1620000 -1620000 1 520000 0.869565217 452173.913 -1167826 2 520000 0.756143667 393194.707 -774631.4 3 520000 0.657516232 341908.4409 -432722.9 4 520000 0.571753246 297311.6877 -135411.3 5 520000 0.497176735 258531.9024 123120.65 6 520000 0.432327596 224810.3499 347931 7 520000 0.37593704 195487.2608 543418.26 8 520000 0.326901774 169988.9224 713407.18 9 520000 0.284262412 147816.4543 861223.64 10 520000 0.247184706 128536.0472 989759.69 11 520000 0.214943223 111770.4758 1101530.2 12 520000 0.18690715 97191.7181 1198721.9 Present Worth 1748520.8 Payback period = 4 years + 135411.3/258531.9024 = 4.524 years