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 ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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