Question text Theodore Inc. is planning to expand its Canadian operations to the United Kingdom. Theodore Inc. runs a group of pet food stores called Dogma. The upfront cost of entering into the UK, including costs of finding store locations and entering into lease agreements is $260,000. The expansion into the UK would involve $500,000 of working capital investment (mostly in-store inventories), which would be released for other uses at the end of the planned 8 year UK operation. The annual cash revenues and expenses for the entire UK operation is budgeted as follows: Revenues $1,500,000 Contribution margin 40% of revenue Fixed costs $500,000 Theodore Inc. also expects that a marketing campaign will occur at the beginning of the expansion in order to build brand awareness. This is expected to cost $35,000. Theodore Inc. assumes that a discount rate of 9% will be appropriate for the UK expansion. Required: a) Compute the net present value of expanding into the UK over the next 8 years (compared to not expanding). (10 marks) b) Based on your result for Part A, should the company expand into the UK? (1 mark) c) Another company

used the net present value method to decide whether to purchase an investment. The net present value was $1, and the upfront investment needed was $100,000. Should the company purchase the investment? Explain. (1 mark)