Sample case study:

A. The owner of Waco Waffle House is considering an expansion of the business. He has identified two alternatives, as follows:

• Build a new restaurant near the mall.
• Buy and renovate an old building downtown for the new restaurant.
• The projected cash flows from these two alternatives are shown below. The owner of the restaurant uses a 10 percent after-tax discount rate:

Cash Outflow Net After-Tax Cash Inflow* Investment Proposal Time 0 Years 1-10 Years 11-20 Mall Restaurant $ 400,000 $ 50,000 $ 50,000 Downtown restaurant 200,000 35,800 *Includes after-tax cash flows from all sources, including incremental revenue, incremental expenses, and depreciation tax shield