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Question: A company can purchase 2 warehouses Now, and 3 more 1 year from Now. The company expects to sell 1 warehouse per year for the next 5 years. In terms of today's value, the warehouses each cost $500,00, and sell for $650,000. The Tax rate is 35%.

a) Suppose Projected Inflation is 0% and the Opportunity Cost of Capital is 9%. What is the NPV of this project?

b) Suppose projected inflation is 4% per year and Opportunity Cost of Capital is 13%. The warehouses purchased Now will be the first to be sold. Recalculate the NPV.

Was given solutions that a) NPV = -520,802 and b) NPV = -938,270 but no clear steps. So a detailed solution would be greatly appreciated.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M92796737

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