Home Grown Company Home Grown Company is a chain of grocery stores that are similar to indoor farmer's markets, providing fresh, local produce, meats, and dairy products to consumers in urban areas. HomeGrown is considering opening several stores in a new city and has proposals from the contractors (Alpha, Beta, and Gamma companies) who would like to provide buildings for the new stores The amount of expected revenue from the stores will depend on the design of the contractor. For example, Home Grown decides on a more open floor plan, with less shell space for products, revenue would be lower overall. However, Home Grown decides on a very crowded floor plan, it may lose customers who appreciate a more open feet As the project manager for Home Grown, you are responsible for deciding which it any of the proposals to accept HomeGrown's minimum acceptable rate of retum is 20%. You receive the following data from the three contractors Residual Value Proposal Alpha Beta $0.00 Type of Floor Plan Very open, like an indoor farmer's market Standard grocery shelving and layout, minimal aisle space Mox of open areas and shelving areas Initial Cost if Selected 51,472.000 5,678.900 2,125,560 0.00 0.00 Gamma You have computed estimates of annual cash flows and average annual income from customers for each of the three contractors' plans. You believe that the annual cash flows will be equal for each of the 10 years for which you are preparing your capital investment analysis. Your conclusions are presented in the following table Proposal Estimated Average Annual Income (after depreciation) 5302,054 272,019 527245 Alpha Estimated Average Annual Cash Flow $351,145 489,805 603.446 Beta Gamma Method Comparison Net Present Average Rate of Return Method Cash Payback Method Internal Rate of Return Method Considers the time value of money Does not consider the time value of money Easy to compute 0 Not as easy to compute 0 Directly considers expected cash flows 0 Directly considers timing of expected cash flows 0 Assumes cash flows can be reinvested at minimum desired rate of retum Can be used to rank proposals even if project lives are not the same 0 Average Rate of Return table, and decide whether Alpha, Beta, and/or Gamma should be eliminated because the average rate of return of their project is less than the company's minimum required rate of return. Complete the following table. Enter the average rates of retum as percentages rounded to two decimal places Proposal Average Rate of Return Accept or Reject? Estimated Average Annual Income $736,000 2,839,450 1,262,980 Average Investment $302,054 Alpha 41.04% Accept Beta 272019 9.58% Reject Gamma 626,564 491619 Accept Net Present Value Even though you're fairly certain that your evaluation and elimination is correct, you would like to compare the three proposals using the net present value method, and get some data about the internal rate of return of the proposals, each of which are expected to generate their respective annual net cash inflows for a period of 10 years. Compute the net present value of each proposal. You may need the following partial table of factors for present value of an annuity of $1. Enter amounts that represent cash outflows as negative numbers using a minus sign. Round the present value of annual net cash flows to the nearest dollar Present Value of an Annuity of $1 at Compound Interest (Partial Table) Year 10% 20% 0.909 0.833 3.791 2.991 6.145 4.192 Net Present Value 10 6.145 4.192 Alpha Gamma Annual net cash flow Present value factor Present value of annual net cash flows $ Amount to be invested Net present value Final Questions After reviewing all your data, answer the following questions (1)-(3). 1. What can you say about each proposal? Internal Rate of Return Proposal Alpha Beta Gamma 2. What can you say about these proposals? Check all that apply. Final Questions 2. What can you say about these proposals? Check all that apply. Only Gamma's proposal is yielding more than Home Grown's minimum desired rate of return Gamma's proposal is the only proposal that would be acceptable to Home Grown. Home Grown would be breaking even (.e., profit = 0) if Alpha's proposal is chosen 3. Which proposal is the best choice for Home Grown given the data collected? Alpha Beta Gamma Home Grown Company Home Grown Company is a chain of grocery stores that are similar to indoor farmer's markets, providing fresh, local produce, meats, and dairy products to consumers in urban areas. HomeGrown is considering opening several stores in a new city and has proposals from the contractors (Alpha, Beta, and Gamma companies) who would like to provide buildings for the new stores The amount of expected revenue from the stores will depend on the design of the contractor. For example, Home Grown decides on a more open floor plan, with less shell space for products, revenue would be lower overall. However, Home Grown decides on a very crowded floor plan, it may lose customers who appreciate a more open feet As the project manager for Home Grown, you are responsible for deciding which it any of the proposals to accept HomeGrown's minimum acceptable rate of retum is 20%. You receive the following data from the three contractors Residual Value Proposal Alpha Beta $0.00 Type of Floor Plan Very open, like an indoor farmer's market Standard grocery shelving and layout, minimal aisle space Mox of open areas and shelving areas Initial Cost if Selected 51,472.000 5,678.900 2,125,560 0.00 0.00 Gamma You have computed estimates of annual cash flows and average annual income from customers for each of the three contractors' plans. You believe that the annual cash flows will be equal for each of the 10 years for which you are preparing your capital investment analysis. Your conclusions are presented in the following table Proposal Estimated Average Annual Income (after depreciation) 5302,054 272,019 527245 Alpha Estimated Average Annual Cash Flow $351,145 489,805 603.446 Beta Gamma Method Comparison Net Present Average Rate of Return Method Cash Payback Method Internal Rate of Return Method Considers the time value of money Does not consider the time value of money Easy to compute 0 Not as easy to compute 0 Directly considers expected cash flows 0 Directly considers timing of expected cash flows 0 Assumes cash flows can be reinvested at minimum desired rate of retum Can be used to rank proposals even if project lives are not the same 0 Average Rate of Return table, and decide whether Alpha, Beta, and/or Gamma should be eliminated because the average rate of return of their project is less than the company's minimum required rate of return. Complete the following table. Enter the average rates of retum as percentages rounded to two decimal places Proposal Average Rate of Return Accept or Reject? Estimated Average Annual Income $736,000 2,839,450 1,262,980 Average Investment $302,054 Alpha 41.04% Accept Beta 272019 9.58% Reject Gamma 626,564 491619 Accept Net Present Value Even though you're fairly certain that your evaluation and elimination is correct, you would like to compare the three proposals using the net present value method, and get some data about the internal rate of return of the proposals, each of which are expected to generate their respective annual net cash inflows for a period of 10 years. Compute the net present value of each proposal. You may need the following partial table of factors for present value of an annuity of $1. Enter amounts that represent cash outflows as negative numbers using a minus sign. Round the present value of annual net cash flows to the nearest dollar Present Value of an Annuity of $1 at Compound Interest (Partial Table) Year 10% 20% 0.909 0.833 3.791 2.991 6.145 4.192 Net Present Value 10 6.145 4.192 Alpha Gamma Annual net cash flow Present value factor Present value of annual net cash flows $ Amount to be invested Net present value Final Questions After reviewing all your data, answer the following questions (1)-(3). 1. What can you say about each proposal? Internal Rate of Return Proposal Alpha Beta Gamma 2. What can you say about these proposals? Check all that apply. Final Questions 2. What can you say about these proposals? Check all that apply. Only Gamma's proposal is yielding more than Home Grown's minimum desired rate of return Gamma's proposal is the only proposal that would be acceptable to Home Grown. Home Grown would be breaking even (.e., profit = 0) if Alpha's proposal is chosen 3. Which proposal is the best choice for Home Grown given the data collected? Alpha Beta Gamma