Garrison Applicances, Inc. is considering expanding its international presence.

Question

Garrison Applicances, Inc. is considering expanding its international presence. Two possible locations are considered:

Possible Locations                      Mumbai                     Bangalore

Initial Cash Outlay                        $5,000,000               $2,800,000

Useful Life                                     20 years                    20 years

Net Cash Inflow                            $1,100,000               $860,000

Cost of Capital                              9%                              9%

Tax Rate                                         40%                           40%

Evaluate each location based on Average Rate of Return, Payback Period, Net Present Value, Profitability Index, Internal Rate of Return

Explanation / Answer

1) NPV

MUMBAI = $1052190

BANGLORE = $1931712

2) PAYBACK PERIOD

MUMBAI= 4 YEARS 7 MONTHS

BANGALORE= 3 YEARS 3 MONTHS

3) PROFITABILITY INDEX

MUMBAI = 2.64

BANGALORE= 3.69

cash flow cash flow mumbai cash flow after tax pv factor present value of cash flow banglore cash flow after tax pv factor present value of cash flow 0 -5000000 -5000000 1 -5000000 -2800000 -2800000 1 -2800000 1 1100000 660000 0.917 605505 860000 516000 0.917 473394 2 1100000 660000 0.842 555509 860000 516000 0.842 434307 3 1100000 660000 0.772 509641 860000 516000 0.772 398447 4 1100000 660000 0.708 467561 860000 516000 0.708 365547 5 1100000 660000 0.650 428955 860000 516000 0.650 335365 6 1100000 660000 0.596 393536 860000 516000 0.596 307674 7 1100000 660000 0.547 361043 860000 516000 0.547 282270 8 1100000 660000 0.502 331232 860000 516000 0.502 258963 9 1100000 660000 0.502 331232 860000 516000 0.502 258963 10 1100000 660000 0.422 278791 860000 516000 0.422 217964 11 1100000 660000 0.388 255772 860000 516000 0.388 199967 12 1100000 660000 0.356 234653 860000 516000 0.356 183456 13 1100000 660000 0.326 215278 860000 516000 0.326 168308 14 1100000 660000 0.299 197503 860000 516000 0.299 154411 15 1100000 660000 0.275 181195 860000 516000 0.275 141662 16 1100000 660000 0.252 166234 860000 516000 0.252 129965 17 1100000 660000 0.231 152508 860000 516000 0.231 119234 18 1100000 660000 0.212 139916 860000 516000 0.212 109389 19 1100000 660000 0.194 128363 860000 516000 0.194 100357 20 1100000 660000 0.178 117764 860000 516000 0.178 92070 NPV 1052190 NPV 1931712

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