Question:
Garrison Appliances, Inc.
Garrison Appliances, Inc. is considering expanding its international presence. It sells 25% of all the toaster ovens sold in the United States but only 3% of the toaster ovens sold outside of the United States.
The organization believes that it can sell more of its product if it has a production facility located overseas. Estimates concerning two possible locations, Mumbai and Bangalore, India follow:
Possible Location Mumbai Bangalore
Initial cash outlay $5,000,000 $2,800,000
Useful life 20 years 20 years
Net cash inflows excluding depreciation
$1,100,000 $860,000
The cost of capital 9% 9%
Tax rate 40% 40%
The Assignment:
Part 1: Prepare a spreadsheet using Excel or a similar program in which you compute the following for each proposed location:
Accounting rate of return on investment
Payback
Net present value
Internal rate of return