V. S. Yogurt is considering two possible expansion plans. Proposal A involves opening 10 stores in northern California at a total cost of$3,150,000. Under another strategy, Proposal B, V. S. Yogurt would focus on southern California and open six stores for a total cost of$2,500,000. Selected data regarding the two proposals have been assembled by the controller of V. S. Yogurt as follows. All revenue andexpense estimates other than depreciation will be received or paid in cash.Required investmentEstimated life of store locationsEstimated salvage valueEstimated annual net cash flowDepreciation on equipment (straight-line basis)Estimated annual net incomeInstructionsProposal A$3,150,0007 years$-0-750,000450,000?Proposal B$2,500,0007 years$ 400,000570,000300,000?a. For each proposal, compute the (1) payback period, (2) return on average investment, and (3) net present value, discounted atmanagement's required rate of return of 15 percent. (Round the payback period to the nearest tenth of a year and the return oninvestment to the nearest tenth of a percent.) Use Exhibits 26-3 and 26-4 where necessary.b. On the basis of your analysis in part a, state which proposal you would recommend and explain the reasoning behind your choice.

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a. For each proposal, compute the (1) payback period, (2) return on average investment, and (3) net present value, discounted at management's required rate of return of 15 percent. (Round the payback period to the nearest tenth of a year and the return on investment to the nearest tenth of a percent.) Use Exhibits 26-3 and 26-4 where necessary.

a. For each proposal, compute the (1) payback period, (2) return on average investment, and (3) net present value, discounted at management's required rate of return of 15 percent. (Round the payback period to the nearest tenth of a year and the return on investment to the nearest tenth of a percent.) Use Exhibits 26-3 and 26-4 where necessary.

Financial And Managerial Accounting

15th Edition

ISBN:9781337902663

Author:WARREN, Carl S.

Publisher:WARREN, Carl S.

Chapter26: Capital Investment Analysis

Section: Chapter Questions

Problem 5MAD: Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to...

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Quantum Logistics, Inc., a wholesale distributor, is considering the construction of a new warehouse to serve the southeastern geographic region near the Alabama–Georgia border. There are three cities being considered. After site visits and a budget analysis, the expected income and costs associated with locating in each of the cities have been determined. The life of the warehouse is expected to be 12 years and MARR is 15%/year.Solve, a. What is the present worth of each site? b. What is the decision rule for determining the preferred site based on present worth ranking? c. Which city should be recommended?
Quantum Logistics, Inc., a wholesale distributor, is considering the construction of a new warehouse to serve the southeastern geographic region near the Alabama–Georgia border. There are three cities being considered. After site visits and a budget analysis, the expected income and costs associated with locating in each of the cities have been determined. The life of the warehouse is expected to be 12 years and MARR is 15%/year. City Initial Cost Net Annual Income Lagrange $1,260,000 $480,000 Auburn $1,000,000 $410,000 Anniston $1,620,000 $520,000 What is the future worth of each site?
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