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Garrison Appliances, Inc

Accounting

Garrison Appliances, Inc., is considering expanding its international presence. It sells 25% of all the toaster ovens sold in the United States, but only 3% of the toaster ovens sold outside of the United States. The company believes that it can sell more of its product if it has a production facility located overseas. Estimates concerning two possible locations, Mumbai and Bangalore, follow:

Bangalore:


Years 1-20

 

Net Income

Cash Flow

Annual cash savings

$860,000

+$860,000

Depreciation($2,800,000/20)

140,000

 

Income before tax

$720,000

 

Tax, 40%

288,000

-288,000

Net Income

$432,000

 

Annual Net cash flow

 

$572,000

 

Average rate of return on investment:
Average Investment is (initial cash outlay) / 2 = $x,xxx,xxx
(net income) / $x,xxx,xxx =

Payback period:
Initial investment / Annual net cash flow = x.x years

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