Simmons Company is a merchandiser with multiple store locations. One of its store managers is considering a shift in her stores product mix in anticipation of a strengthening economy. Her store would invest $800,000 in more expensive merchandise (an increase in its working capital) with the expectation that it would increase annual sales and variable expenses by $400,000 and $250,000, respectively for three years. At the end of the three-year period, the store manager believes that the economic surge will subside; therefore, she will release the additional investment in working capital. The store managers pay raises are largely determined by her stores return on investment (ROI), which has exceeded 22% each of the last three years.

Click here to view Exhibit 12B-1 and Exhibit 12B-2 to determine the appropriate discount factor(s) using table. (Use appropriate factor(s) from the tables provided.)

Required:

1. Assuming the companys discount rate is 16%, calculate the net present value of the store managers investment opportunity.

2. Calculate the annual margin, turnover, and return on investment (ROI) provided by the store managers investment opportunity.

3. Assuming that the companys minimum required rate of return is 16%, calculate the residual income earned by the store managers investment opportunity for each of years 1 through 3.

4. Do you think the store manager would choose to pursue this investment opportunity? Do you think the company would want the store manager to pursue it?

Present Value of no Annuity of S1 in Arrears; 15(1-1/1r))) Periods 1 2 3 + S G 7 8 9 10 11 12 13 14 15 LO 17 4% 5% 6% 7% 7% 8% 9% 10% 11% 12% 13% 14% 15% 16% 17% 18% 19% 20% 21% 22% 23% 24% 25% 0.962 0.952 0.952 0.943 0935 0.926 0.926 0.917 0.909 0.901 0.893 0.885 0.877 0.870 0.862 0.855 0.847 0.840 0.833 | 0.626 0.826 0.8200.813 0.806 0.800 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.713 1.690 1.668 1.626 1.605 1.58S 1.966 1.5471.528 1.909 1.492 1.474 1.457 1.440 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.444 2.402 2.361 2.283 2.246 2.210 2.174 2.140 2.106 2.074 2.042 2.011 1.981 1.952 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.102 3.037 2.974 2.914 2.855 2.798 2.743 2.6902.639 2.589 2.540 2.444 2.448 2.404 2.362 4.452 4.329 4.212 4.100 3.093 3.800 3.791 3.696 3.005 3.517 3.433 3.352 3.352 3.274 3.109 3.1993.127 3.058 2.901 2.926 2.664 2.03 2.745 2.689 5.242 5.076 4.912 4,767 1.622 4.486 4.355 4.231 4.111 3.998 3.989 3.784 3.665 3.589 3.498 3.410 3.326 3.245 3.167 3.092 3.020 2.951 6.00 5.786 5.582 5.389 S. 2010 5.033 4.868 4.712 4.564 4.423 4.28 4.160 3.922 3.812 3.76 3.605 3.508 3.416 3.327 3.242 3.161 6.733 6.466 6.210 5.971 5.747 5.535 5.335 5.146 4.968 4.799 4.639 4.487 4.344 4.2007 4.078 3.954 3.837 3.726 3.619 3.SIR 3.421 3.329 7.435 7.108 7,108 6.802 6.315 6.247 9.995 5.759 5.537 5.3285.132 | 4.946 4.772 4.4407 4.451 4.303 4.163 4.031 3.905 3.786 3.673 3.5663.463 8.111 7.722 7.360 70246.710 6.418 6.145 5889 5650 5.426 5.216 5.019 4.833 4.659 4.494 4.339 4.192 4.054 3.923 3.799 3.6823.571 8.760 8.306 7.887 7.499 7.139 6.605 6.4956 207 5.938 5657 5.453 5.234 5.029 4.836 4.656 4.486 4.327 4.177 4.035 3.902 3.776 3.656 9.38 8.863 8.384 7.943 7.536 7.161 6.814 6.492 6.194 5.918 5.660 5.421 5.1974.988 4.793 4.611 4.439 4.278 4.127 3.985 3.851 3.725 9.986.104 8.853 8.358 7.904 487 7.103 6.250 6.424 6.122 5.8425.583 5.583 5.342 5.1184.9104.715 4.533 4.362 4.20 4.053 3.912 3.780 10.563 | 9.899 9.295 8.745 8.244 7.7867.3676.982 6.02X 6.302 6.0X025.724 5.724 5.468 5.229 5.00 4.802 4.611 4.432 4.205 4.10: 3.962 3.824 11.11810).380) 1.712 1.10X 8.539 8.061 7.191 0.811 0.462 0.142 5.847 5.575 5.324 5.002 4.876 4.675 4.489 4.315 4.153 4.001 3.859 11.652 10.838 10.100 9.447 X.X51 8.313 7.824 7.379 0.974 0.004 6.265 5.954 5.668 5.405 5.162 4.938 4.730 4.536 4.357 4.189 4.133 3.887 12.166 | 11.274 10.477 9.763 9.122 8.544 8.022 7519 7.121 (1.729 0.373 6.1M75.749 5.475 5.222 4.990) 1.775 1.576 4.391 -1.219 4.059 3.910 12.659 11.690 10.828 10.059 9.372 8.756 7.2.30 6.840 6.467 6.128 5.8185.534 5.2735.033 1.812 4.60 1.419 4.243 4.080 3.928 13.134 12.085 11.158 10.336 9.604 8.950) 8.365 7.839 7.366 6.938 6.550 6.198 5.8775.584 5.316 5.070 4.843 4.635 4.442 4.263 4.0973.942 13.590 12.462 11.470 10.594 9.818 9.129 8.514 7.963 7.4697.025 6.623 6.259 5.929 5.628 5.3535.101 4.870 4.657 4.460 4.279 4110 3.954 14.029 12.821 11.764 10.836 10.017 9.292 8 649 8075 7.5627.1026.687 6.3125.973 5.665 5.384 5.127 4.891 4.675 4.476 4.292 4.121 3.963 14.451 13.163 12.042 11.061 10.2019.442 8.772 8.176 7.645 7.170 6.743 6.3596.011 5.696 3.410.149 4.909 4.690 4.488 4.302 4.130 3.970 14.857 13.489 12.303 11.272 10.371 9.580 8.883 8 266 7.718 ?.230 6.792 6.399 6.044 5.723 5.432 5.167 4.925 4.703 4.499 4.311 4.137.976 15.247 13.799 12.550 11.469 10.529 9.707 XUNS X 34% 7.784 7.2836.835 0.434 6.0735,746 5.451 5.182 4.937 4.713 4.S07 4.31% 4.1423.081 15.622 14.04 12.783 11.654 10.675 9.823 9.077 8.422 7.843 7.330 6.873 6.464 6.1997 5.766 5.467 5.195 4.948 4.721 4.514 4.323 4.1473.085 15.983 14.375 13.1103 11.X26 10.81019.929 9.161 X.48% 7.896 7.372 6.900 6.491 6.118 5,783 5.480) 5.2116 4.956 4.728 4.520 4.32 4.151 3.988 16.330 14.613 13.211 11.987 10.935 10.027 9.237 8.548 7.943 7.409 6.935 6.514 6.1.36 5.798 5.192 5.215 4.964 4.734 4.524 4.332 4.154 3.09) 16.663 14.898 13.406 12.137 11.051 10.116 9.307 8.602 7.984 7.441 6.961 6.534 6.1525.810) 6.152 5.810 5.502 5.223 1.970) 1.739 1.52% 1.335 4.157 3.992 16,984 15.141 13.591 12.278 11.158 10.198 9.370 8.650 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