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CoursHeroTranscribedText: Lou Lewis, the president of Lewisville Company, has asked you to give him an analysis ofthe best use of a warehouse the company owns. Note The company has a 38% effective tax rate. a. Lewisville Company is currently leasing the warehouse to another company for $5,500 per month on a yeartoyear basis. [Hint Use the PV function in Excel to calculate. on an aftertax basis, the PV ofthis stream of monthly rental receipts.) b. The warehouse's estimated sales value is $212,000. A commercial realtor believes that the price is likely to remain unchanged in the near future. The building originally cost $62,500 and is being depreciated at $1,750 annually. Its current net book value [NEW is $7,750. c. Lewisville Company is seriously considering converting the warehouse into a factory outlet for furniture. The remodeling will cost $125,000 and will be modest because the major attraction will be rockbottom prices. The remodeling cost will be depreciated over the next 5 years using the double-declining-balance method. [Note Use the VDB function in Excel to calculate depreciation charges. The advantage of using the V08, rather than the BBB, function is that there is a {default} option in the former that provides an automatic switch to the straightline method when it is advantageous to do so.) d. The inventory and receivables [net ofcurrent liabilities} needed to open and sustain the factory outlet would be $640,000. This total is fully recoverable whenever operations terminate. e. Lou is fairly certain thatthe warehouse will be condemned in 10 years to make room for a new highway. The firm most likely would receive $225000 from the condemnation. f. Estimated annual operating data, exclusive ofdepreciation, are as follows: Sales (cash) 5 925,000 Operating expenses 5 525,000 g. Nonrecurring sales promotion costs at the beginning of year 1 [i.e., attime 0) are expected to be $108,000. [These costs are fully deductible for tax purposes.) h. Nonrecurring termination costs at the end of year 5 are $55,000. [These costs are fully deductible for tax purposes.) i. The aftertax discount rate for capital budgeting purposes is 15%. [To calculate the present value factor for each year, 1', i=1, 5, use the following formula: PV factori :{1+1_151]_The company is in the 38% tax bracket {federal and state combined}. Show how you would handle the individual items in determining whether the company should continue to lease the space or convert it to a factory outlet. Use PU function in Excel, VDB function in Excel to calculate annual depreciation charges. Use NW Function to calculate depreciation tax savings. (Negative amounts should be indicated by a minus sign. Round your answers to the nearest whole dollar.) Alteretax monthly rent foregone b. Current warehouse c. Remodeling cost (capitalized) Depreciation tax savings {DDB method; @38%) d. Investment in net working capitai e. Recovery of net working capth 1'. Altertax cash sales Aftertax cash operating expenses g. Altertax sales promolion cost, year h. Altertax termination cost, year 5

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