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 net present value analysis. It also estimates that the residual value at the end of each restaurants useful life is $0; but at the end of the fourth year, Wichitas residual value would be $500,000.

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 Wichita $310,000 310,000 310,000 310,000 310,000 310,000 Topeka $400,000 400,000 400,000 400,000 The committee has selected a rate of 20% for purposes of net present value analysis. It also estimates that 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 1296 15% 20% 1 0.9434 0.9091 0.8929 0.8696 0.8333 2 0.8900 0.8265 0.7972 0.7561 0.6944 3 0.8396 0.7513 0.7118 0.6575 0.5787 0.7921 0.6830 0.6355 0.5718 0.4823 5 0.7473 0.6209 0.5674 0.4972 0.4019 0.7050 0.5645 0.5066 0.4323 0.3349 7 0.6651 0.5132 0.4523 0.3759 0.2791 0.6274 0.4665 0.4039 0.3269 0.2326 0.5919 0.4241 0.3606 0.2843 0.1938 10 0.5584 0.385S 0.3220 0.2472 0.1615 6% 10%