Use the information below to answer the following question(s).
Williams Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,800,000. Under the other proposal, the company would focus on Kentucky and open 6 stores at a cost of $2,400,000. The following information is available:

-The net present value of the Indiana proposal is closest to

Question

Use the information below to answer the following question(s).
Williams Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,800,000. Under the other proposal, the company would focus on Kentucky and open 6 stores at a cost of $2,400,000. The following information is available:
 
-The net present value of the Indiana proposal is closest to

Quizplus · Accepted Answer

To calculate the net present value (NPV) of each proposal, we need to discount the future cash flows using a discount rate of 10%. For the Indiana proposal, the future cash flows are $500,000 per year for 5 years, so the total future cash flows are $2,500,000. Discounting these cash flows gives us a present value of $1,822,700. Subtracting the initial investment of $1,800,000 gives an NPV of $22,700. For the Kentucky proposal, the future cash flows are $600,000 per year for 6 years, so the total future cash flows are $3,600,000. Discounting these cash flows gives us a present value of $2,215,700. Subtracting the initial investment of $2,400,000 gives an NPV of -$184,300. Therefore, the Indiana proposal has a higher NPV and would be the better choice.

Use the Information Below to Answer the Following Question(s)