Bruceton's Is a Specialty Retailer with Multiple Brick-And-Mortar Stores and a Cost

question 89

Multiple Choice

Bruceton's is a specialty retailer with multiple brick-and-mortar stores and a cost of capital of 16.4 percent.Specialty Imports is a wholesaler of specialty items and has a cost of capital of 12.6 percent.Both firms are considering opening a new store in downtown Chicago at a cost of $1.1 million.Because this type of store would be trendy, it would have a life of only 8 years and no salvage value.The expected annual net cash flow is $229,000, regardless of which firm opens the store.Which company(ies) , if either, should open the Chicago store?

• A)Bruceton's only
• B)Specialty Imports only
• C)Neither company
• D)Both companies
• E)The answer cannot be determined based on the information provided.

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Definitions:

Revolving Loan

A type of credit that allows the borrower to withdraw, repay, and redraw funds repeatedly up to a certain credit limit.

Average Balance

A calculation used by financial institutions to determine the average amount of money in an account over a specific period, often used to calculate interest charges or eligibility for benefits.

Portfolio

A collection of investments held by an individual or institution.

Rate of Return

The upward or downward shift in an investment's value over a designated period, quantified as a percentage of its initial value.