Capital Budgeting Preference Decision

Calculate payback period, net present value, internal rate of return and simple rate of return. Based on the info, determine which restaurant is more profitable to open.

Restaurant 1 Restaurant 2 Initial Investment: 4000000 4000000 Annual cash inflows: $1,000,000 $1,200,000 Annual cash outflows: $600,000 $850,000 Annual non-cash (all depreciation) expenses: Use straight line depreciation to find! # of years of expected useful life of project: 25 30 For both, assume no residual value Discount rate 5% 5%