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 has been determined. The life of the warehouse is expected to be 12 years, and MARR is 15%/year. Based on an internal rate of return analysis, which city should be recommended?

Initial Cost Net Annual Income
Clemson: $1,260,000 $480,000
Augusta: $1,000,000 $410,000
Beaufort: $1,620,000 $520,000

Answer 1

Answer: Augusta

Explanation:

You can use Excel to calculate the IRRs of each of these cities.

Make a table in Excel that looks like the attachment.

Use the IRR formula to calculate each IRR by using the values of the city (note how Beaufort was done).

Initial investment should be a negative number.

City                       IRR

Clemson               37%

Augusta                40%

Beaufort                31%

The city with the highest IRR should be recommended and that city is Augusta.