Rebel Restaurant Pte Ltd RR is looking for a new location in shopping malls. RR is
considering purchasing a shop rather than leasing, as it has done in the past. Three retail
shops in a new mall are available. Each shop has its own advantages and disadvantages.
The owner of RR has completed an analysis of each shop that factors in the time value
of money. RR expects to pay a tax rate of for the next four years. The information
is as follows:
At the same time, RR has also received three proposals for a new microbrewery machine
it intends to install in the shop instead of buying beer from local suppliers. Data on each
machine is as follows:
Required:
a The owner does not understand how the shop with the highest internal rate of
return also has the lowest net present value. Explain probable causes of this
contradiction observed by the owner.
marks
b Based on the information available, which shop would you recommend that the
owner of RR choose? Explain your recommendation.
marks
c Compute each machine's payback period. Which machine would you recommend
the owner of RR choose? Why?
marks
