Answered: City Initial Cost Net Annual Income…

City Initial Cost Net Annual Income Lagrange $1,260,000 $480,000 Auburn $1,000,000 $410,000 Anniston $1,620,000 $520,000

Survey of Accounting (Accounting I)

8th Edition

ISBN:9781305961883

Author:Carl Warren

Publisher:Carl Warren

Chapter14: Decentralized Operations

Section: Chapter Questions

Problem 3SEQ: Division A of Kern Co. has sales of $350,000, cost of goods sold of $200,000, operating expenses of...

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

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%/yr. Based on an internal rate of return analysis, which city should be recommended?

City
Initial Cost Net Annual Income
Lagrange $1,260,000
$480,000
Auburn $1,000,000
$410,000
Anniston $1,620,000
$520,000

Definition Definition Discount rate of a project wherein its net present value equals zero. Internal rate of return equates the present value of future cash flows with the initial investments. Internal rate of return helps to determine nominal cash flows.

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