Garrison Appliances Inc.

Read the information below and complete Parts I and IIGarrison 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:
Possible Location Mumbai BangaloreInitial cash outlay $5,000,000 $2,800,000Useful life 20 years 20 yearsNet cash inflows excluding depreciation $1,100,000 $860,000The cost of capital 9% 9%Tax rate 40% 40%
Evaluate each of the proposed locations using each of the following: 1) average rate of return on investment, 2) payback period, 3) net present value, 4) profitability index, and 5) internal rate of return.
Part I: Prepare a written report for the board of directors detailing exactly how you computed each item for each proposal and then explain in detail the conclusion you reached regarding the feasibility of each proposal. If the board decides to invest in only one location, explain which one it should be and why.
Part II: What other factors should be considered before making a decision and why?