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. Investment Proposal Cash Outflow: Time 0 Net After-Tax Cash Inflows*Footnote asterisk Years 110 Years 1120 Mall restaurant $ 400,000 $ 50,000 $ 50,000 Downtown restaurant 200,000 35,800 0 *Footnote asterisk Includes after-tax cash flows from all sources, including incremental revenue, incremental expenses, and depreciation tax shield. The owner of Waco Waffle House will consider capital project.

Compute the payback period for each of the proposed restaurant sites.

Compute the accounting rate of return for each proposed site. Assume the average annual incremental income is $50,000 for the mall restaurant and $35,800 for the downtown restaurant.

If the owner of the restaurant sticks to his criteria, which site will he choose?