Due to growing membership, a food hub in Western Georgia is considering building a refrigerated warehouse for produce. The new facility would increase annual operating expense by $21,200 due to utilities, maintenance, and additional labor. The increased capacity and improved produce shelf life from the facility will help the food hub increase operating receipts by $64,500 per year. The refrigerated warehouse would be 4000 square feet and it would cost $130 per square foot to build. Suppose that the food hub wanted to evaluate this investment over a ten-year period of time. The food hub anticipates that the cold storage facility could be sold for $440,000 in ten years. The food hub expects that their marginal tax rate over the next eleven years will be 20%. The IRS will allow the food hub to depreciate the investment using straight line over 30 years. Assume that the terminal value of this investment is $440,000 at the end of ten years. The food hub will require a 7% return to capital (pretax). Required:
a. Calculate the Initial Cost
b. Calculate the after tax- net returns
c. Calculate the tax savings from depreciation
d. Calculate the after-tax terminal value
e. Which discount rate should be used for calculating the NPV of this investment?
f. What is the NPV?