Evaluate Alternative Capital Investment Decisions

Evaluate Alternative Capital Investment Decisions The investment committee of Iron Skillet Restaurants Inc. is evaluating two restaurant sites. The sites have different useful lives, but each requires an investment of $1,000,000. The estimated net cash flows from each site are as follows: Net Cash Flow Year Site A Site B $500,000 WN $400,000 400,000 400,000 400,000 400,000 400,000 500,000 500,000 500,000 Present Value of $1 at Compound Interest Year 69% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.890 0.826 0.797 0.756 0.694 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.335 0.507 0.452 0.432 0.376 0.665 0.513 0.279 Check My Work Previous eBook Calculator Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20% 0.943 0.909 0.893 0.870 0.833 0.826 0.797 0.756 0.694 0.890 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 ) 0.705 0.665 8 0.627 0 .592 100.558 0.564 0.513 0.467 0.424 0.386 0.507 0.452 0.404 0.361 0.322 0.432 0.376 0.327 0.284 0.247 0.335 0.279 0.233 0.194 0,162 9 Present Value of an Annuity of $1 at Compound Interest Year 6% 10% 12% 15% 20% 1 0.9430.9090.893 0.870 0.833 2 1.833 1.736 1.690 1.626 1.528 2.673 2487 2.402 2.283 2.106 3.4653.1703.037 2.855 2.589 5.582 4.868 4.564 4.160 3.605 Check My Work All work saved. MacBook Air eBook B Calcuator 5.335 6.210 4.968 4.487 3.837 9 6 .802 5.759 5.328 4.772 4.031 107 .360 6.145 5.6505.019 4.192 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 $0, but at the end of the fourth year, Site A's residual value would be $300,000 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, use the minus sign to indicate a negative net present value. Site A Present value of annual net cash flows Less amount to be invested Net present value 2. For each site, compute the net present value, assuming that Site A is adjusted to a four year life for purposes of analysis. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value Site A Present value of net cash flow total Amount to be invested Net present value 3. Which site do you recommend? You may assume that only a project that meets the minimum expected return would be recommended and that, due to limited funds, only one project may be selected Site Previous Check My Work 0.627 0.467 0.404 0.327 0.233 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% 0.943 0.909 0.893 0.870 0.833 HNM 1.833 1.6901.626 1.528 1.736 2.487 2.402 2.283 2.106 2.673 3.465 3.170 3.0372.855 2.589 i 4.212 3.791 3.605 3.353 2.991 6 4.917 4.355 4.111 3.785 3.326 N 5.5824.868 4.564 4.160 3.605 00 6.210 5.335 4.968 4.4873.837 a 6.802 5.759 5.328 4.772 4 .031 107.360 6.145 5.6505.0194.192 The committee has selected a rate of 20% for purposes of net present value analy $0, but at the end of the fourth year, Site A's residual value would be $300,000. Required: 1. For each site, compute the net present value. Use the present value of an annu minis sinn to indicat