ABC Ltd., a high-end furniture manufacturer specializes in classic, handcrafted designs that combine style and utility. The company, which was…

ABC Ltd., a high-end furniture manufacturer specializes in classic, handcrafted designs that combine style and utility. The company, which was founded with a passion for quality craftsmanship and environmentally friendly methods, provides a wide variety of furniture for homes and workplaces, such as dining tables, living room sets, bedroom collections, and custom-built items. However, lately the company has been facing delays in product delivery due to limited storage and inefficient distribution. To enhance its supply chain and improve customer satisfaction, the company has decided to establish two strategically located warehouses. This move aims to reduce delivery time, optimize inventory management, and streamline logistics operations. ABC Ltd. previously relied on a single warehouse near its production facility, causing bottlenecks in order fulfillment and increasing transportation costs for distant markets. After analyzing demand trends and logistics inefficiencies, the company plans to set up one warehouse – Baton either in the northern region, closer to key suppliers, and or in the southern region- Katon, near major customer hubs. The further details of either of the two warehouses to be introduced are as follows: Warehouse Baton The Initial cost of the warehouse is 40,00,000 and its useful life is 5 years. It's annual net savings before tax is projected as follows: Year 1: 12,00,000 Year 2: 14,00,000 Year 3: 10,00,000 Year 4:10,00,000 Year 5: 13,00,000 Further, the Mid-life major maintenance is expected to be - 5,00,000 in Year 3, salvage value - 5,00,000 and Shutdown and disposal cost -1,00,000 in Year 5. Warehouse Katon: The Initial cost of the warehouse is 60,00,000 and its useful life is 8 years. It's annual net savings before tax is projected as follows: Year 1-2: 10,00,000 Year 3-6: 15,00,000 Year 7-8: 12,00,000 Maintenance cost details: Year 4: 2,00,000 Year 7: 3,00,000 Further, the salvage value is expected to be - 8,00,000, and shutdown and disposal cost to be - 1,50,000 in Year 8. The company is subject to tax rate of 30% and considers 10% to be an appropriate after-tax cost of capital. The company follows straight-line method of depreciation. You are being a finance manager, has been asked the following questions: