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Homework answers / question archive / Garrison Appliances, Inc
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
