MacArthur’s is a fast food company planning to invest in a restaurant expansion that entails the refurbishment and opening of four new stores across the country. The cost of this investment is $4 800 000. It is to be depreciated (straight-line basis) over a period of 10 years with no residual value. The discount rate is 8 per cent. The company tax rate is 30 per cent. The other relevant cash flow information relating to this project is presented in the following table.

Year ............................ Net cash inflow
1 ......................................... $ 999 400
2 ......................................... $1 599 400
3  .........................................$2 399 400
4 ......................................... $3 999 400
5 ......................................... $4 799 400
6 ......................................... $5 999 400
7 ......................................... $5 199 400
8 ......................................... $4 799 400
9 ......................................... $2 399 400
10 ....................................... $ 799 400

Rather than building the new stores, the MacArthur’s management team have also considered expanding offshore. However, the management accountant is concerned about the riskiness of this business and that not all factors have been included in the calculation. There is difficulty in capturing some qualitative non-financial factors and estimating other longer-term cash flows.

Required

(a) Calculate the NPV for the proposed investment.

(b) Following on from the calculations in part (a), should MacArthur’s make the investment in the four new stores?

(c) What would you advise on preparing for the offshore decision? Discussion should include reference to the financial and non-financial factors that may influence this decision and suggestions to improve the decision model.