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O'Mally Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,810,000. Under the other
O'Mally Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,810,000. Under the other proposal, the company would focus on Kentucky and open 6 stores at a cost of $2,500,000. The required payback is 4 years. The following information is available: Indiana proposal Kentucky proposal Required investment $1,810,000 $2,500,000 Estimated life 7 years 7 years Estimated residual value $60,000 $50,000 Estimated annual cash inflows $500,000 $800,000 Required rate of return 14% 14% The accounting rate of return (ARR) for the Indiana proposal is closest to would O'Mally choose? Based on ARR which proposal O A. 27.6%, Kentucky proposal OB. 24.3%, Indiana proposal O C. 13.8%, Kentucky proposal OD. 18%, Indiana proposal
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