Please explain this Payback analysis Case

Tom: I have a different issue. We recently initiated talks with Lucky Tower Inc. This is a company that has many cell-phone towers in the US. We would like to purchase one of their towers so that we can expand our presence internationally. As you know, we only have a market presence in Canada as we only have Canadian towers. Although we have long distance plans available for our customers, to obtain better reception for our customers, we would like to purchase a tower in Orlando. An advantage here is that TTI can also begin selling phone plans in Florida. I have provided some forecast cost and revenue figures in Appendix II. In your report, can you please determine whether it makes sense for us to invest in this tower? Please provide a quantitative and a qualitative analysis. We also want to know how long it will take to recover our investment. We hope that this does not take more than three years. The BOD has set specific criteria for capital expenditure requirements, including but not limited to an internal rate of return. From: To: RE: CPA, Lucky Tower Inc. Proposal Tom Stevenson, COO CPA Potential deal with Lucky Tower Inc. (LTI) I am excited to announce the details of our deal with LTI to purchase one of their towers. This is a great move for us as it would allow us to expand our presence internationally. As you know, we currently have one cell-phone tower here in Canada. LTI's tower is in Orlando, Florida. Here are some relevant facts: Market size in Orlando is currently 15,000,000 cell-phone plans. Over the past couple years, the market has been growing 3% per year. We forecast that the growth will be 2% this fiscal year (i.e., fiscal year ended May 31, 2023) and next year, 1% the following year, and then exhibit no growth 2025 onwards. We estimate that we can capture 1% market share for cell-phone plans. That will likely continue for the foreseeable future We would like to charge the same prices (Canadian equivalent) we are charging now in Orlando. Assume an exchange rate conversion factor of 1.25 CAD/USD [read as 1.25 Canadian Dollars equals 1 US Dollar] in your analysis. We will not be performing any online surveys in the US at this time. 20% of our semi-conductor chip sales are to the US. We predict that because of our international presence for our phone plans in the US, our semi-conductor chip sales will increase by 10% BOD would like a return on investment of 15%. Please use this as your discount rate. The purchase of the tower will cost us $5,500,000 USD As we are based in Canada and purchasing a tower in the US, we have to pay an international license fee of $1,000,000 USD per year to the Canadian government By the end of year five, we plan on selling the tower for $4,000,000 USD. The Company will pay a tax rate of 22% on all income. Taxes recovered on losses of selling assets is 11%. We have enough cash available to purchase this tower Semi-conductors Direct Labour per unit Direct Materials per unit Variable overhead Variable marketing Total Cost of sales supervisor per year Cost of hiring COO in the US per year Admin personnel salaries per year Factory rent per year Total Cost Figure [CAD] 5 7 24 Cost Figure [CAD] 100,000 190,000 250,000 100,000 640,000 Telephone plans Commission per plan sold Data plan charge fees Government fee Total Percentage 15% 10% 32% Cost Figure [CAD] 150,000 250,000 100,000 500,000 Tom: I have a different issue. We recently initiated talks with Lucky Tower Inc. This is a company that has many cell-phone towers in the US. We would like to purchase one of their towers so that we can expand our presence internationally. As you know, we only have a market presence in Canada as we only have Canadian towers. Although we have long distance plans available for our customers, to obtain better reception for our customers, we would like to purchase a tower in Orlando. An advantage here is that TTI can also begin selling phone plans in Florida. I have provided some forecast cost and revenue figures in Appendix II. In your report, can you please determine whether it makes sense for us to invest in this tower? Please provide a quantitative and a qualitative analysis. We also want to know how long it will take to recover our investment. We hope that this does not take more than three years. The BOD has set specific criteria for capital expenditure requirements, including but not limited to an internal rate of return. From: To: RE: CPA, Lucky Tower Inc. Proposal Tom Stevenson, COO CPA Potential deal with Lucky Tower Inc. (LTI) I am excited to announce the details of our deal with LTI to purchase one of their towers. This is a great move for us as it would allow us to expand our presence internationally. As you know, we currently have one cell-phone tower here in Canada. LTI's tower is in Orlando, Florida. Here are some relevant facts: Market size in Orlando is currently 15,000,000 cell-phone plans. Over the past couple years, the market has been growing 3% per year. We forecast that the growth will be 2% this fiscal year (i.e., fiscal year ended May 31, 2023) and next year, 1% the following year, and then exhibit no growth 2025 onwards. We estimate that we can capture 1% market share for cell-phone plans. That will likely continue for the foreseeable future We would like to charge the same prices (Canadian equivalent) we are charging now in Orlando. Assume an exchange rate conversion factor of 1.25 CAD/USD [read as 1.25 Canadian Dollars equals 1 US Dollar] in your analysis. We will not be performing any online surveys in the US at this time. 20% of our semi-conductor chip sales are to the US. We predict that because of our international presence for our phone plans in the US, our semi-conductor chip sales will increase by 10% BOD would like a return on investment of 15%. Please use this as your discount rate. The purchase of the tower will cost us $5,500,000 USD As we are based in Canada and purchasing a tower in the US, we have to pay an international license fee of $1,000,000 USD per year to the Canadian government By the end of year five, we plan on selling the tower for $4,000,000 USD. The Company will pay a tax rate of 22% on all income. Taxes recovered on losses of selling assets is 11%. We have enough cash available to purchase this tower Semi-conductors Direct Labour per unit Direct Materials per unit Variable overhead Variable marketing Total Cost of sales supervisor per year Cost of hiring COO in the US per year Admin personnel salaries per year Factory rent per year Total Cost Figure [CAD] 5 7 24 Cost Figure [CAD] 100,000 190,000 250,000 100,000 640,000 Telephone plans Commission per plan sold Data plan charge fees Government fee Total Percentage 15% 10% 32% Cost Figure [CAD] 150,000 250,000 100,000 500,000