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 restauramt uses a 6% after tax discount rate.

Investment proposal	Cash Outflow Time 0	Net after cash Inflows* Years 1-10	Years 11-20
Mall restaurant	$872,000	$78,500	S78,500
Downtown Restaurant	$337,500	49,000	XXXXXX

* Includes after-tax cash flows from all sources, including inccremental revenue, incremental expenses, and depreciation tax shueld.

Required:

1. Compute the net present value of each alternative restuarant site.

2. Compute the profitablity index for each alternative.

3. How do the two sites rank in terms if NPV and the profitability index?

1.

	Net Present Value
Mall Restaurant
Downtown Restaurant

2.

	Profitablity Index
Mall restuarant
Downtown Restaurant

3.

	NPV	Profitablity Index
Mall restuarant
Downtown Restaurant