Question

I.C. Cream is considering two possible expansion plans. Proposal A involves opening eight stores in northern Alaska at a total cost of $4,000,000. Under another strategy, Proposal B, I.C. Cream would focus on southern Alaska and open five stores for a total cost of $3,000,000. Selected data regarding the two proposals have been assembled by the controller of I.C. Cream as follows:



Instructions
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 12 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.
b. On the basis of your analysis in part a, state which proposal you would recommend and explain the reasoning behind your choice.
In Exhibits 26–3


In Exhibits26–4


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  • CreatedApril 17, 2014
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