Alternative Capital InvestmentsThe investment committee of Auntie M's Restaurants Inc. is evaluating two restaurant sites. The sites havedifferent useful lives, but each requires an investment of $900,000. The estimated net cash flows fromeach site are as follows:Net Cash FlowsYear Wichita Topeka1 $310,000 $400,0002 310,000 400,0003 310,000 400,0004 310,000 400,0005 310,0006 310,000The committee has selected a rate of 20% for purposes of net present value analysis. It also estimates thatthe residual value at the end of each restaurant’s useful life is $0, but at the end of the fourth year,Wichita’s residual value would be $500,000.Present Value of $1 at Compound InterestYear 6% 10% 12% 15% 20%1 0.943 0.909 0.893 0.870 0.8332 0.890 0.826 0.797 0.756 0.6943 0.840 0.751 0.712 0.658 0.5794 0.792 0.683 0.636 0.572 0.4825 0.747 0.621 0.567 0.497 0.4026 0.705 0.564 0.507 0.432 0.3357 0.665 0.513 0.452 0.376 0.2798 0.627 0.467 0.404 0.327 0.2339 0.592 0.424 0.361 0.284 0.19410 0.558 0.386 0.322 0.247 0.162Present Value of an Annuity of $1 at Compound InterestYear 6% 10% 12% 15% 20%1 0.943 0.909 0.893 0.870 0.8332 1.833 1.736 1.690 1.626 1.5283 2.673 2.487 2.402 2.283 2.1064 3.465 3.170 3.037 2.855 2.5895 4.212 3.791 3.605 3.353 2.9916 4.917 4.355 4.111 3.785 3.3267 5.582 4.868 4.564 4.160 3.6058 6.210 5.335 4.968 4.487 3.8379 6.802 5.759 5.328 4.772 4.03110 7.360 6.145 5.650 5.019 4.192Required:1. For each site, compute the net present value. Use the present value of an annuity of $1 table above.Ignore the unequal lives of the projects. If required, round to the nearest dollar.Wichita TopekaPresent value of annual net cash flows $ $Amount to be invested $ $Net present value $ $2. For each site, compute the net present value, assuming that Wichita is adjusted to a four-year life forpurposes of analysis. Use the present value of $1 table above. If required, round to the nearest dollar.Wichita TopekaPresent value of net cash flow total $ $Amount to be invested $ $Net present value
Alternative Capital Investments
The investment committee of Auntie M's Restaurants Inc. is evaluating two restaurant sites. The sites have
different useful lives, but each requires an investment of $900,000. The estimated net cash flows from
each site are as follows:
Net Cash Flows
Year Wichita Topeka
1 $310,000 $400,000
2 310,000 400,000
3 310,000 400,000
4 310,000 400,000
5 310,000
6 310,000
The committee has selected a rate of 20% for purposes of
the residual value at the end of each restaurant’s useful life is $0, but at the end of the fourth year,
Wichita’s residual value would be $500,000.
Present Value of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 0.890 0.826 0.797 0.756 0.694
3 0.840 0.751 0.712 0.658 0.579
4 0.792 0.683 0.636 0.572 0.482
5 0.747 0.621 0.567 0.497 0.402
6 0.705 0.564 0.507 0.432 0.335
7 0.665 0.513 0.452 0.376 0.279
8 0.627 0.467 0.404 0.327 0.233
9 0.592 0.424 0.361 0.284 0.194
10 0.558 0.386 0.322 0.247 0.162
Present Value of an Annuity of $1 at Compound Interest
Year 6% 10% 12% 15% 20%
1 0.943 0.909 0.893 0.870 0.833
2 1.833 1.736 1.690 1.626 1.528
3 2.673 2.487 2.402 2.283 2.106
4 3.465 3.170 3.037 2.855 2.589
5 4.212 3.791 3.605 3.353 2.991
6 4.917 4.355 4.111 3.785 3.326
7 5.582 4.868 4.564 4.160 3.605
8 6.210 5.335 4.968 4.487 3.837
9 6.802 5.759 5.328 4.772 4.031
10 7.360 6.145 5.650 5.019 4.192
Required:
1. For each site, compute the net present value. Use the present value of an annuity of $1 table above.
Ignore the unequal lives of the projects. If required, round to the nearest dollar.
Wichita Topeka
Present value of annual net cash flows $ $
Amount to be invested $ $
Net present value $ $
2. For each site, compute the net present value, assuming that Wichita is adjusted to a four-year life for
purposes of analysis. Use the present value of $1 table above. If required, round to the nearest dollar.
Wichita Topeka
Present value of net cash flow total $ $
Amount to be invested $ $
Net present value
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