ABC Stores is planning its store expansion for this year's capital budget. They have five potential locations, but there is a hard limit of $27.5 million on the amount that can be spent year on expansion. ABC wants to pick the best package of store expansions, given the six-year financial projections shown in the table below. Because of differences in state laws, local tax incentives, build-versus-lease options, and local economic conditions, the annual cash flow projections for the five potential locations differ significantly. Terminal values have already been incorporated into the After-Tax Operating Cash Flows for Year 6 so they do not require a separate calculation. The numbers in the table are in thousands of dollars.

A junior analyst has calculated several capital budgeting metrics, based on the data in the table and a capital cost of 12%, and now it is up to you to make a recommendation. Using financial principles, what do you recommend for this year's capital budget. Provide a justification that senior management can understand.

Atlanta

Boston

Charleston

Dallas

Evanston

Initial Investment

($12,250)

($11,200)

($14,200)

($14,400)

($21,450)

After-tax Operating Cash Flow, Year 1

$3,773

$2,233

$6,042

$926

$15,327

After-tax Operating Cash Flow, Year 2

$3,509

$2,552

$4,851

$1,122

$9,589

After-tax Operating Cash Flow, Year 3

$3,597

$3,080

$4,378

$1,927

$3,311

After-tax Operating Cash Flow, Year 4

$3,586

$4,620

$4,002

$5,570

$1,822

After-tax Operating Cash Flow, Year 5

$3,254

$4,833

$1,978

$6,300

$1,079

After-tax Operating Cash Flow, Year 6

$3,875

$4,930

$1,430

$15,719

$522

Net Present Value (NPV)

$2,565

$3,197

$2,568

$3,771

$4,270

Internal Rate of Return (IRR)

19.2%

20.1%

19.8%

17.7%

24.6%

Modified Internal Rate of Return (MIRR)

15.6%

16.8%

15.1%

16.4%

15.4%

Profitability Index (PI)

1.21

1.29

1.18

1.26

1.20

Payback Period

3.38 years

3.72 years

2.76 years

4.77 years

1.64 years