OMally Department Stores is considering two possible expansion plans. One propos

Question

OMally Department Stores is considering two possible expansion plans. One proposal involves opening 5 stores in Indiana at the cost of $1,860,000. Under the other proposal, the company would focus on Kentucky and open 6 stcres at a cost of $2,500,000. The following information is available: Required investment Estimated life Estimated residual value Estimated annual cash inflows over the next 9 years Required rate of return $1,860,000 7 years $50,000 $400,000 10% $2,500,000 7 years $80,000 S700,000 10% The payback period for the Indiana proposal is closest to O A. 5.31 years. O B. 37.20 years. C. 3.57 years. O D. 4.65 years

Explanation / Answer

Payback period=Initial investment/Annual cash inflows

which is equal to

=(1860,000/400,000)

which is equal to

=4.65 years.

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