Grinders

Inc. operates a chain of

snack

shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of

$8,940,000.

Expected annual net cash inflows are

$1,600,000

with zero residual value at the end of

ten

years. Under Plan B,

Grinders

would open three larger shops at a cost of

$8,840,000.

This plan is expected to generate net cash inflows of

$1,250,000

per year for

ten

years, the estimated life of the properties. Estimated residual value is

$1,000,000.

Grinders

uses straight-line depreciation and requires an annual return of

8%.

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