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.
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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 beingconsidered. After site visits and a budget analysis, the expected income andcosts associated with locating in each of the cities have been determined. Thelife of the warehouse is expected to be 12 years and MARR is 15%/yr. Based on an internal rate of return analysis, 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?
- Home Garden Inc. is considering the construction of a distribution warehouse in West Virginia to service its east coast stores based on the following estimates: a. Determine the net present value of building the warehouse, assuming a construction cost of 20,000,000, an annual net cost savings of 4,000,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A. b. Determine the net present value of building the warehouse, assuming a construction cost of 25,000,000, an annual net cost savings of 2,500,000, and a desired rate of return of 14%. Use the present value tables provided in Appendix A. c. Interpret the results of parts (a) and (b).Without prejudice to your answers to previous questions, and assume that Davao plans to market its product in a new territory. Davao estimates that an advertising and promotion program costing P61,500 annually would need to be undertaken for the next two or three years. In addition, a P25 per ton sales commission over and above the current commission to the sales force in the new territory would be required. How many tons would have to be sold in the new territory to maintain Davao’s current after-tax income of P94,500?A Utility Corporation uses the investment center concept for the service stations that it manages in the city. Consolidated has a 15% required rate of return on investment in order for a branch station to be viable. Select operating data for three of its stations for 2017 are as follows: Demon Street Angel Street Elves Street Revenue $17,000,000 $13,500,000 $15,000,000 Operating Assets $7,000,000 $7,000,000 $6,000,000 Net Operating Income $900,000 $1,200,000 $980,000 Required: Compute the return on investment for each station Which station manager is doing best based only on ROI? Why? Are any of the stations in danger of being closed due to lack of performance? What other factors should be included when evaluating the managers?
- Peronto’s Inc. is an asphalt contractor located in Kansas City, Mo. Peronto’s Inc. is planning on expanding into the Chicago market is budgeting that the start-up expenditures for the new Chicago facilities will be $25,000. These expenditures will be for the location of a new facility and the incremental expenditures for conducting business in a new territory. The CFO for Peronto’s believes that the $25,000 start upexpenditures should be recognized as an asset because they will benefit the company for many periods in the future. Your role as the staff accountant is to determine the correct recognition for the start up expenditures. Your interpretation of the guidance: The correct recognition of the $25,000 start up expenditures will be: a. as an asset b. as an expenseYard Works owns multiple gardening supply stores in Vancouver and is planning upgrades in some locations. These are the four independent projects they are considering: Project A: Initial cost of $300,000; Revenues/Cost savings of $150,000 in year 1, and $120,000 in years 2 and 3. Project B: Initial cost of $360,000; Revenues/Cost savings of $40,000 in year 2, and $200,000 in years 3 to 5. Project C: Initial cost of $210,000; Revenues/Cost savings of $10,000 in years 1 and 2, $100,000 in year 3, and $120,000 in years 4 and 5. Project D: Initial cost of $125,000; Revenues/Cost savings of $30,000 in year 1, and $10,000 in each quarter in years 2 to 5. If the owners of Yard Works have $700 000 to invest in these projects, and they expect at least 12% return on all of their projects, in which project or combination of multiple projects should they invest?You must prepare a return on investment analysis for the regional manager of Fast & Great Burgers. This growing chain is trying to decide which outlet of two alternatives to open. The first location (A) requires a $500,000 investment and is expected to yield annual net income of $70,000. The second location (B) requires a $200,000 investment and is expected to yield annual net income of $44,000. Compute the return on investment for each Fast & Great Burgers alternative. Using return on investment as your only criterion, which location (A or B) should the company open? (The chain currently generates an 22% return on total assets.)
- The investment committee of Auntie M's Restaurants Inc. is evaluating two restaurant sites. The sites have different useful lives, but each requires an investment of $900,000. The estimated net cash flows from each site are as follows: Net Cash Flows Year Wichita Topeka 1 $310,000 $400,000 2 310,000 400,000 3 310,000 400,000 4 310,000 400,000 5 310,000 6 310,000 The committee has selected a rate of 20% for purposes of net present value analysis. It also estimates that the residual value at the end of each restaurant’s useful life is $0, but at the end of the fourth year, Wichita’s residual value would be $500,000. Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.943 0.909 0.893 0.870 0.833 2 0.890 0.826 0.797 0.756 0.694 3 0.840 0.751 0.712 0.658 0.579 4 0.792 0.683 0.636 0.572 0.482 5 0.747 0.621 0.567 0.497 0.402 6 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 8 0.627 0.467…You must prepare a return on investment analysis for the regional manager of Fast & Great Burgers. This growing chain is trying to decide which outlet of two alternatives to open. The first location (A) requires a $500,000 investment and is expected to yield annual net income of $70,000. The second location (B) requires a $200,000 investment and is expected to yield annual net income of $44,000. Compute the return on investment for each Fast & Great Burgers alternative. Using return on investment as your only criterion, which location (A or B) should the company open? (The chain currently generates an 22% return on total assets.) Complete this question by entering your answers in the tabs below. Return on Investment Choice of Location Compute the return on investment for each Fast & Great Burgers alternative. Return on Investment 1 Location A Location B Numerator Denominator 2 of 3 H Next > G OHomecraft Stores (HSI), which operates a chain of retail warehouse-type stores, is considering opening a new store in the Tampa area. The store itself will cost $7,000,000 to build. In addition, fixtures for the store are expected to cost $700,000, and installation of the fixtures is estimated to cost another $50,000. Initial net working capital (primarily due to inventory) is expected to be $600,000. HSI plans to build the Tampa store on land it purchased five years ago for $200,000. The land is presently worth $500,000 and is expected to remain at $500,000 while the store is being built. Calculate the net investment for the proposed Tampa store.