6 EOEGSPl -'CCT-ECI'|0-0 'x' E:' Connect - Sign In 'X' M l'-.-'lHE Header 23-:22 '5 Bib Me: Free Modern L-.= 'x' I + C O 0 plays rui.mhed ucation.com PROBLEM 26.5A Capital Budgeting Using Multiple Models L026-1 , L026-2 , LO263 . LO26-4 V. S. Yogurt is considering two possible expansion plans. Proposal A involves opening 10 stores in northern California at a total cost of $3,150,000. Under another strategy, Proposal B, V. S. Yogurt would focus on southern California and open six stores for a total cost of $2,500,000. Selected data regarding the two proposals have been assembled by the controller of V. S. Yogurt as follows. Pro posal A Proposal B Required investment $3,150,000 $2,500,000 Estimated life of store locations 7 years 7 years Estimated salvage value $ 0 $ 400,000 Estimated annual net cash ow 750,000 570,000 Depreciation on equipment [straightline basis} 450,000 300,000 Estimated annual net income ? ? Instructions 3. For each proposal, compute the {1} payback period, (2) return on average investment, and (3) net present value, discounted at managements required rate of return of 15 percent. (Round the payback period to the nearest tenth of a year and the return on investment to the nearest tenth of a percent.) Use Exhibits 263 [ and 264 where necessary. I}. On the basis of your analysis in part a, state which proposal you would recommend and explain the reasoning behind your choice. PROBLEM 26.611 Analyzing a Capital Investment Proposal L026-3 @ Pathways Appliance Company is planning to introduce a builtin blender to its line of small home appliances. Annual sales of the blender are estimated at 12,000 units at a price of 335 per unit. Variable r'. ' . .' .I.:f~1_r ' ' .lf'" | r- ' .(d .J