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 20 percent after-tax discount rate.

Investment Proposal	Cash Outflow: Time 0			Net After-Tax Cash Inflows*
				Years 110			Years 1120
Mall restaurant	$	240,000		$	54,000		$	54,000
Downtown restaurant		123,500			34,000

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

Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)

Required:

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

2. Compute the profitability index for each alternative.

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

Future Value and Present Value Tables Table 1 Future Value of $1.0011+ Period 45 1414 4. 2# 4 40 24 1. 4f4 4 .? 74 974 3 1.44) 1. 4 1.7| 13 3 251 s 34# atOE 347 33 2CH 42 13774 2 3 / 4 24 #jt . 7 3 f6443743 324 .74440 0 17.40 23 9% 84] 3 .pajnft ; S. + 41 fl616F1 1E146gbf W 40 Period Table II Future Value of a series of 31.00 Cash Flows Ordinary Amu + = E%B 1342 4 ) . JPG 2[a] 1 3.1 3142f 3310837 247474. 04.[444.77 47, 7y4 744E E: B49009 10/ 1216 0Fr jfhE37 114# 123@ 1833 jE4 4+ =Jf } 13 70/ 144/ 15. B /54 4 3 / br 14940 110 E L H/ 1154 /2/ n: 4 53 htm 1]#/ 447 4 1 224 [ H24 4577032 237.5g/ . 152 ] [24 ] .16 31.// 3 9240 27 4 57.276 7.7E + [EIA 9 reg1: ca // A 34fE4 4) fc157? c1f4 577e7434 10) 13431/ Table III Present of $100 [1 + ) * 34u f a7774374EFF 7? fit ? 574 3) 34.74.75172 [44 & qg g 4@ 40047744 iJA / /5 F E % /v/ 41/ E/ ? / / 2 0 3.747&E14607.4944374204424EptgA 1 2,707444t7039; g2707 9] . E3443@4 43429492.& 191 73474) + F4043E19Ef#33] 157 |31fr 1 2004jt 209314.1441#c48? 400?t 4436?? 03|/ gpr++ regta [g 1| HS/ 5374 36) 27 W a ? 1? | /9 / t 5 / / 4 24W2249320/f443/420gg643] 1 #4 Afti A w & 1481 ) [a] [utfF %E040 @33fc7 1p44 40 gs pp . 1 2 0 .cg? 04 . 03 ] [ 43 44731294.841ce [ry6c8404@ g02 H0 4%jijE14/A Int/IEWy90107f6fry 3 474cgg / g 02 . 04 ccg @ domDA = *# 4 fjft %E (Fr @fifrit- Table IV Present Value of Series of $1.00 Cash Flows eri4x6 ] 14162082224282a] 0+ 340 T+ are (0 Fet] 0 0 0 0Ft 04: 0 A# 0F] 07A 0.534 0.7 16 1 .1 1 S g ei@ 241474 ( 42 43 4 A** 3.0 3.4EE 238 3.4 3 [C3294427* 279 2 | 244 2.44 22 23 244 24 A_ 4E? |334 127 2 faE 24} 17, 1:|:17 gt Af 174E 2Fap9 A EP 234 242 42 43 Fgggag # r 3 2#| sg 23 R? A# 41 45 4Fai 4] ] fat 3 FE },41 124 21et A#3 ] 19 %7 .747 32; 494E4344403E