Major Importers would like to spend $211,000 to expand its warehouse. However, the company has a loan outstanding that must be repaid in 2.5 years and thus will need the $211,000 at that time. The warehouse expansion project is expected to increase the cash inflows by $48,000 in the first year, $139,000 in the second year, and $210,000 a year for the following two years. Should the firm expand at this time? Why or why not?
A) Yes; because the money will be recovered in 1.69 years
B) Yes; because the money will be recovered in 1.87 years
C) Yes; because the money will be recovered in 2.11 years
D) No; because the project never pays back
E) No; because the money will not be recovered in time to repay the loan

Question

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The Answer of Major Importers would like to spend $211,000 to expand its warehouse. However, the company has a loan outstanding that must be repaid in 2.5 years and thus will need the $211,000 at that time. The warehouse expansion project is expected to increase the cash inflows by $48,000 in the first year, $139,000 in the second year, and $210,000 a year for the following two years. Should the firm expand at this time? Why or why not?
A) Yes; because the money will be recovered in 1.69 years
B) Yes; because the money will be recovered in 1.87 years
C) Yes; because the money will be recovered in 2.11 years
D) No; because the project never pays back
E) No; because the money will not be recovered in time to repay the loan

Major Importers Would Like to Spend $211,000 to Expand Its