John, the general manager of AAA is planning an expansion for the AAA store. John was debating this decision for a longtime, but when demand outstripped supply at his store, he decided to expand the business. Expanding the business requires a thorough analysis, which he plans to carry out this week. AAA Company is a successful business venture. It is expected that sales at the AAA will increase substantially in the coming 5 years. Right now, the company occasionally runs out of inventory. To meet the increase in demand John is planning an expansion. John has two locations in mind each location has a unique value proposition. John gathered a lot of data, to make sure he is taking the right decision. First, he went out, and calculated the rent rates at each location. The rent is a running expense, it is not volatile, but it increases in-line with inflation. Next, John analyzed the neighborhood demographics, this is an essential step which will enable forecasting future sales. The neighborhood demographics proved to be very similar. Both neighborhoods have a lot of middle-class working families, which is the target market for AAA Company. Moreover, John also made sure to visit the local city council, in order to obtain more information on the required permits. The permit is essential, since zoning requirements could restrict certain business activities. After obtaining the information for each location, john started thinking about capital investments. He researched the appropriate equipment which will be used in each store. He also went out and talked to a couple contractors and obtained quotes for his suggested design and store layout. He was satisfied with pricing. Finally, John went to his financial manager and they together analyzed the required working capital financing for each location. The financial manager, used pro-forma financial statements to forecast the expected sales figure, cost of goods sold, and operating expenses. Also, the financial manager, made sure to calculate the "Weighted Average Cost of Capital", the stores will be financed via a mix of equity and debt. The financial manager summarized the key cash flows (presented in the tables below), and he's eager to know the expected profitability for each project; NPV, IRR, and Payback Period. It's expected that each store will require major renovations after 10 years, and thus the project life is limited to 10 years. Option A: 5800 Yonge St. N Year Expected Cash flow Comment 0 2019 -$ 2,500,000.00 Includes Working Capital 1 2020 $ 255,000.00 2 2021 $ 100,000.00 3 2022 $ 200,000.00 4 2023 $ 300,000.00 5 2024 $ 450,000.00 6 2025 $ 550,000.00 7 2026 $ 156,000.00 8 2027 $ 700,000.00 9 2028 $ 780,000.00 10 2029 $ 1,000,000.00 Includes Salvage Value Cost of Capital: 12% Option B: 1136 Avenue Rd. N Year Expected Cash flow Comment 0 2019 -$ 4,000,000.00 Includes Working Capital 1 2020 $ 408,000.00 2 2021 $ 800,000.00 3 2022 $ 320,000.00 4 2023 $ 960,000.00 5 2024 $ 720,000.00 6 2025 $ 880,000.00 7 2026 $ 249,600.00 8 2027 $ 500,000.00 9 2028 $ 800,000.00 10 2029 $ 1,600,000.00 Includes Salvage Value Cost of Capital: 12% Your task is to analyze the above capital projects, and reach a capital decision based on (IRR, NPV, and Payback). In order to finance this project, the company has three options: Line of Credit Secured Loan Corporate Credit Card Which option should be selected and why? udy Your