Beck Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,920,000. Under theother proposal, the company would focus on Kentucky and open 6 stores at a cost of $2,600,000. The following information is available:Required investmentEstimated lifeEstimated residual lifeEstimated annual cash inflows over the next 8 yearsRequired rate of returnThe net present value of the Kentucky proposal is closest to:Present Value of $1Periods7891011126%0.6650.6270.5920.5580.5270.497Present Value of Annuity of $16%Periods7-89101112A. $1,406,720B. $4,006,720OC. $1,374,400OD. $1,342,0805.5826.2106.8027.3607.8878.3848%0.5830.5400.5000.4630.4290.3978%5.2065.7476.2476.7107.1397.53610%0.5130.4670.4240.3860.3500.31910%4.8685.3355.7596.1456.4956.81412%0.4520.4040.3610.3220.2870.25712%4.5644.9685.3285.6505.9386.194C...Indiana proposal$1,920,0008 years$60,000$800,00012%14%0.4000.3510.3080.2700.2370.20814%4.2884.6394.9465.2165.5535.660Kentucky proposal$2,600,0008 years$80,000$800,00012%

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Description: Beck Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,920,000. Under theother proposal, the company would focus on Kentucky and open 6 stores at a cost of $2,600,000.

We are given the following details related to the Kentucky proposal:Required: Calculate the NPV of…

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Beck Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,920,000. Under the other proposal, the company would focus on Kentucky and open 6 stores at a cost of $2,600,000. The following information is available: Required investment Estimated life Estimated residual life Estimated annual cash inflows over the next 8 years Required rate of return The net present value of the Kentucky proposal is closest to: Present Value of $1 Periods 7 8 6% 0.665 0.627 0.592 0.558 0.527 0.497 Present Value of Annuity of $1 6% 5.582 6.210 6.802 7.360 7.887 8.384 9 10 11 12 Periods 7 8 9 10 11 12 A. $1,406,720 OB. $4,006,720 OC. $1,374,400 OD. $1,342,080 8% 0.583 0.540 0.500 0.463 0.429 0.397 8% 5.206 5.747 6.247 6.710 7.139 7.536 10% 0.513 0.467 0.424 0.386 0.350 0.319 10% 4.868 5.335 5.759 6.145 6.495 6.814 12% 0.452 0.404 0.361 0.322 0.287 0.257 12% 4.564 4.968 5.328 5.650 5.938 6.194 Indiana proposal $1,920,000 8 years $60,000 $800,000 12% 14% 0.400 0.351 0.308 0.270 0.237 0.208 14% 4.288 4.639 4.946 5.216 5.553 5.660 Kentucky proposal $2,600,000 8 years $80,000 $800,000 12%

Beck Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,920,000. Under the other proposal, the company would focus on Kentucky and open 6 stores at a cost of $2,600,000. The following information is available: Required investment Estimated life Estimated residual life Estimated annual cash inflows over the next 8 years Required rate of return The net present value of the Kentucky proposal is closest to: Present Value of $1 Periods 7 8 6% 0.665 0.627 0.592 0.558 0.527 0.497 Present Value of Annuity of $1 6% 5.582 6.210 6.802 7.360 7.887 8.384 9 10 11 12 Periods 7 8 9 10 11 12 A. $1,406,720 OB. $4,006,720 OC. $1,374,400 OD. $1,342,080 8% 0.583 0.540 0.500 0.463 0.429 0.397 8% 5.206 5.747 6.247 6.710 7.139 7.536 10% 0.513 0.467 0.424 0.386 0.350 0.319 10% 4.868 5.335 5.759 6.145 6.495 6.814 12% 0.452 0.404 0.361 0.322 0.287 0.257 12% 4.564 4.968 5.328 5.650 5.938 6.194 Indiana proposal $1,920,000 8 years $60,000 $800,000 12% 14% 0.400 0.351 0.308 0.270 0.237 0.208 14% 4.288 4.639 4.946 5.216 5.553 5.660 Kentucky proposal $2,600,000 8 years $80,000 $800,000 12%

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 4P

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