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ACME Toaster Ovens, Inc. Home Appliances, Inc. is considering expanding its international presence. It sells 25% of all the toaster ovens sold in the United
ACME Toaster Ovens, Inc.
Home Appliances, Inc. is considering expanding its international presence. It sells 25% of all the toaster ovens sold in the United States but only 3% of the toaster ovens sold outside of the United States. The organization believes that it can sell more of its product if it has a production facility located overseas. Estimates concerning two possible locations, Ho Chi Minh City, Vietnam and Hanoi, Vietnam follow:
Possible Location | Ho Chi Minh City, Vietnam | Hanoi, Vietnam |
Initial cash outlay | $4,500,000 | $2,500,000 |
Useful life | 20 years | 20 years |
Net cash inflows excluding depreciation | $965,000 | $790,000 |
The cost of capital | 9% | 9% |
Tax rate | 40% | 40% |
- Part 1:Prepare a spreadsheet using Excel or a similar program in which you compute the following for each proposed location.
- Accounting rate of return on investment
- Payback
- Net present value
- Internal rate of return
- Part 2:Utilizing Word or another word processing software program, prepare a written report for the Board of Directors. The intended audience is clear from the salutation and the language used throughout the report.
- Include a detailed and thorough explanation of the conclusion you reached regarding the feasibility of each proposal supported by the calculations prepared in Part 1.
- Explain at least five non-financial items (e.g., culture, language, etc.), which may impact the perceived desirability of each location.
- Select the one location you recommend the Board invest in. Explain your rationale in precise and detailed language.
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