Currently, WM3’s facility in Delaware rents out a warehouse by $255,000 per year to store all its raw and finished products. Instead, WM3 can build its own warehouse for a cost of $700,000. Consequently, the company will be able to save the cost with renting every year. You can assume that the warehouse will be ready for use by December 31, 2017 and the initial cost will be paid in full by this date. However, there are rumors that this facility will close in the future. There is a 20% chance that will close in four years (by the end of 2021), 35% chance that will close in seven years (by the end of 2024), and 45% chance that will close in 10 years (by the end of 2027). Assume that the renting cost amount increases at a general inflation rate of 2.5% per year.
You must perform an after-tax analysis. Let MARR be 15% and tax rate be 34%. Furthermore, you need to model the problem described in Option 3 with a decision tree. You can use any analysis method you want (PW, EUAW, ΔIRR, ΔB/C)