Freshfare Co is a food retailer with 25 stores in the south of the country in which it operates. The board of directors are currently considering expansion into the north of the country by opening a large new store in a major northern city.
The investment in the new store is estimated to cost \($40m\). This will be financed mainly through a new bank loan of \($35m\) at a cost of 8 per cent a year. The investment is expected to pay back within three years with an IRR of 22 per cent.
You have been asked to make a presentation on the proposed investment at the next meeting of the board of directors. The directors have raised some queries regarding the calculations in the investment appraisal and would like you to address the following points in your presentation:

1. A feasibility study for the new store has already been completed at a cost of \($28,000\). This cost has not been included in the investment appraisal calculations.
2. The interest payments on the bank loan of \($35m\) will be payable quarterly.
These payments have not been included in the investment appraisal calculations.
3. The chief accountant proposes to charge 5 per cent of central office administration costs to the new store. This charge has not been included in the investment appraisal calculations.
4. The company has a policy of depreciating all new investments on a straight-line basis over four years. No depreciation charge has been included in the investment appraisal calculations.
5. When the new store opens, it will be managed by one of the company’s most experienced store managers. This manager earns \($40,000\) per year and this cost has been included in the investment appraisal calculations. When the manager moves to the new store, her assistant manager will be promoted to take over her current job. The assistant manager currently earns \($25,000\) per year but will receive a salary increase to \($30,000\) per year when he is promoted.
Required:
Make notes for your presentation to the board of directors which explain the treatment of each of the five issues above. You should state whether you agree with the accounting treatment in each case. If you disagree with the accounting treatment, you should explain why and propose an alternative.