Simply Chocolate Company is considering two possible expansion plans.Proposal X involves opening five stores in North...

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Simply Chocolate Company is considering two possible expansionplans.Proposal X involves opening five stores in North Carolina ata cost of $2,400,000. Under Proposal Y, the company would focus onVirginia and open six stores at a cost of $3,000,000. The followinginformation is given for the two proposals:

                                                                          ProposalX          Proposal Y
Requiredinvestment                                     $2,400,000        $3,000,000
Estimatedlife                                                  10years             10 years
Estimated residualvalue                                 $200,000             $200,000
Estimated annual net cashflows                       $450,000            $580,000
Required rate ofreturn                                      14%                     14%
Based on the above following problem,
Required: for each proposal, you are asked tocalculate
a.Pay back Period
b.Accounting Rate of Return
c.Net Present Value
d.Profitability Index
3.Indicate which proposal is the better investment.

Answer & Explanation Solved by verified expert

3.8 Ratings (629 Votes)

a Payback period for Proposal X 2400000450000533 year andfor proposal Y3000000580000 517 yearb Accounting rate of return for See Answer

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Simply Chocolate Company is considering two possible expansionplans.Proposal X involves opening five stores in North Carolina ata cost of $2,400,000. Under Proposal Y, the company would focus onVirginia and open six stores at a cost of $3,000,000. The followinginformation is given for the two proposals: ProposalX Proposal YRequiredinvestment $2,400,000 $3,000,000Estimatedlife 10years 10 yearsEstimated residualvalue $200,000 $200,000Estimated annual net cashflows $450,000 $580,000Required rate ofreturn 14% 14%Based on the above following problem,Required: for each proposal, you are asked tocalculatea.Pay back Periodb.Accounting Rate of Returnc.Net Present Value d.Profitability Index3.Indicate which proposal is the better investment.