Sasha opened a vintage clothing store in Cambridge three years ago. The business has grown steadily, and customer demand has been robust, with the shop often crowded. Sasha wishes to expand the business and is considering three possible options for doing so: Option 1: Building an extension off of the back of the existing store. Option 2: Opening a second shop in a different area of the town. Option 3: Developing an on-line shopping alternative, which would require investing in new distribution processes and facilities. Sasha has researched all options. Whichever option is chosen, Sasha plans to sell the entire business in five years' time. Notes: '000 (1) Sasha's projected cash flows for Option 1 are as follows: Projected cash flows for Option 1 Time Immediately Cash outflow (180) Year 1 Cash inflow 50 Year 2 Cash inflow 55 Year 3 Cash inflow 60 Year 4 Cash inflow 62 Year 5 Cash inflow 64 Year 5 Disposal proceeds 120 (2) Sasha's estimated cost of capital is 10 per cent. Discount factor table Years 10% 0 1 1 0.909 2 0.826 3 0.751 4 0.683 5 0.621 (3) Depreciation would be charged on the straight-line basis on all of the options. (4) Assume that the cash flows arise at the end of each year and ignore cash flows arising after this five-year period. (5) Table below shows the PP, ARR and NPV for option 2 & 3. Option 1 2 3 PP (in years) 3.31 2.58 3.83 ARR 31% 27% 37% NPV (in 000's) 110.5 94.0 105.2 Required: (a) Calculate the Payback Period (PP), Accounting Rate of Return (ARR) and Net Present Value (NPV) for Option 1: Building an extension to the existing store facility. (15 marks) (b) Sasha would like to proceed with no more than one of the options. Advise her regarding the alternatives, including which one, if any, you believe she should choose and why. Discuss other factors that she should take into account in making a her decision