(Present Value Tables Are Needed - the Net Present Value of the Kentucky Proposal Is

question 12

Multiple Choice

(Present value tables are needed.) 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: $$\begin{array} { | l | l | l | } \hline & \text { Indiana proposal } & \text { Kentucky proposal } \\\hline \text { Required investment } & \$ 1,800,000 & \$ 2,400,000 \\\hline \text { Estimated life } & 10 \text { years } & 10 \text { years } \\\hline \text { Estimated residual value } & \$ 50,000 & \$ 80,000 \\\hline \begin{array} { l } \text { Estimated annual cash inflows over } \\\text { the next 10 years }\end{array} & \$ 400,000 & \$ 500,000 \\\hline \text { Required rate of return } & 10 \% & 10\%\\\hline\end{array}$$
- The net present value of the Kentucky proposal is closest to:

• A)$672,500.
• B)$677,300.
• C)$684,600.
• D)$703,380.

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Definitions:

Deflation

The general decline in prices in an economy.

Consumer Price Index

An index that measures the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, indicating the level of inflation or deflation in an economy.

Specific Set

A clearly defined and identified collection of elements or members.

General Price

The standard or average cost of goods or services available in the market to all consumers.