Question
Michigan Shoe Stores is planning to sell its Southgate, Battle Creek, and Grand Rapids stores. The firm expects to sell each of the three stores
Michigan Shoe Stores is planning to sell its Southgate, Battle Creek, and Grand Rapids stores. The firm expects to sell each of the three stores for the same, positive cash flow of $C. The firm expects to sell its Southgate store in K years, its Battle Creek store in K years, and its Grand Rapids store in N years. The cost of capital for the Southgate and Battle Creek stores is I percent and the cost of capital for the Grand Rapids store is M percent. We know that K > N > 0 and I > M > 0. The cash flows from the sales are the only cash flows associated with the various stores. Based on the information in the preceding paragraph, which one of the following assertions is true? The Battle Creek store is the most valuable of the 3 stores The Grand Rapids store is the most valuable of the 3 stores The Southgate store is the most valuable of the 3 stores Two of the three stores have equal value and those two stores are more valuable than the third store or all three stores have the same value Cannot be determined based on the information given.
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