The investment committee of Auntie M's Restaurants Inc. is evaluating two restaurant sites. The sites have different useful lives, but each requires an investment of $900,000. The estimated net cash flows from each site are as follows: 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 is $0; but at the end of the fourth year, Witchita's residual value would be $500,000.

Present Value of $1 at Compound Interest Year 6% 10% 12% 15% 20%

1: 0.943 0.909 0.893 0.870 0.833

2: 0.890 0.826 0.797 0.756 0.694

3: 0.840 0.751 0.712 0.658 0.579

4: 0.792 0.683 0.636 0.572 0.482

5: 0.747 0.621 0.567 0.497 0.402

6: 0.705 0.564 0.507 0.432 0.335

7: 0.665 0.513 0.452 0.376 0.279

8: 0.627 0.467 0.404 0.327 0.233

9: 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%

1: 0.943 0.909 0.893 0.870 0.833

2: 1.833 1.736 1.690 1.626 1.528

3: 2.673 2.487 2.402 2.283 2.106

4: 3.465 3.170 3.037 2.855 2.589

5: 4.212 3.791 3.605 3.352 2.991

6: 4.917 4.355 4.111 3.784 3.326

7: 5.582 4.868 4.564 4.160 3.605

8: 6.210 5.335 4.968 4.487 3.837

9: 6.802 5.759 5.328 4.772 4.031

10: 7.360 6.145 5.650 5.019 4.192

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, round to the nearest dollar. Witchita Topeka 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 Witchita is adjusted to a four-year life for purposes of analysis. Use the present value of $1 table above. If required, round to the nearest dollar. Witchita Topeka Present value of net cash flow total $ $ Less amount to be invested $ $ Net present value $ $

3. The net present value of the two sites over equal lives indicates that the site has a higher net present value and would be a superior investment.