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Anticipated revenue and estimated rate of return

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The XYZ has a choice between two warehouses. A lease at location A costs 1000 per month with a payment 2000 upfront to guarantee the 3 year lease. Location B would cost 1200 per month and would be leased from month to month. The anticipated revenue in either location is 1500 per month. the estimated rate of return is 10%. using net present value determine which location would be better

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Solution Summary

This solution uses the net present value method to determine the location that would be the best for XYZ Company.

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A:

12 x (1500 - 1000) =
12 x 500 =
6000

NPV of 6000 =
6000 + ($6000/1.1) + ...

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