O'Mally Department Stores Is Considering Two Possible Expansion Plans

question 5

Multiple Choice

O'Mally Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,810,000. Under the other proposal, the company would focus on Kentucky and open 6 stores at a cost of $2,500,000. The following information is available: The payback period for the Indiana proposal is closest to

• A)4)11 years.
• B)3)13 years.
• C)3)62 years.
• D)30.17 years.

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Definitions:

International Fisher Effect

A theory stating that the difference in nominal interest rates between two countries is equal to the expected change in exchange rates.

Expected Percentage Change

An estimation of the degree to which a specific variable such as price, cost, or investment value is anticipated to vary over a certain period.

Interest Rates

The percentage of a loan that is applied as interest for the borrower, usually shown as an annual percentage of the remaining loan amount.

Uncovered Interest Parity

A theory in economics that posits the difference in interest rates across two countries will match the anticipated shift in exchange rates between their currencies.