Suppose you are building a refrigerated extension to a storage facility. The cost of labor and...

Suppose you are building a refrigerated extension to a storage facility. The cost of labor and materials to build it are 58,000 and 160,000, respectively. The pre-tax discount rate is 12%, the tax rate is 20%, and the extension would add $220,000 to the value of the facility if sold in 10 years. Calculate the present value of the initial cost.

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Expert Solution

Cost of labour = 58,000

Cost of material = 160,000

Discount rate = 12%

Salvage Value = 220,000

Tax rate = 20%

After tax Salvage value = 220000*(1-0.2) = 176,000

PV of After tax Salvage value = 176,000/(1.12^10) = 56,667.29

PV of Initial cost = 58000+160000-56667.29 = 161332.71

jeff jeffy answered 2 years ago

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