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 8 percent after-tax discount rate. Investment Proposal Cash Outflow: Time 0 Net After-Tax Cash Inflows* Years 110 Years 1120 Mall restaurant $ 396,500 $ 42,500 $ 42,500 Downtown restaurant 160,500 26,500 * 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. Compute the profitability index for each alternative. How do the two sites rank in terms of NPV and the profitability index?

2. Compute the profitability index for each alternative. (Round your answers to 2 decimal places.)

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

	NPV	Profitability Index
Mall restaurant
Downtown resraurant

	Net Present Value
Mall restaurant
Downtown restaurant

	Profitability Index
Mall restaurant
Downtown restaurant

Future Value and Present Value Tables able I uo$1.01 125 1.191 1 301 1.464 1.406 1.482 1.728 1.30 1.762 2488 1712 2.196 1.584 2 360 2 594 24/6 2.773 3106 1.423 5.160 1.79 2332 1.732 2 201 20 2181 200 6720 able II 1.00 Ch lows 1000 1000 100) 2.100 4779 7330 T 716 13 580 960 12 21 35 21015 23276 15 20024 271 31773 37 260 56790 1,10100 15026 154.782 057 507 767000 1,342000 7,34ag00 9058 1132 149 241.330 Table III PresentVelue of $1.00 .7317 540 "201 .305 .206 210 201 .170 157 ,S39 123 100 13 .001 A09290 229 .182 .s45 .116 093 ,001 000 040 027 Table IV 1.00 Cash Faws Period 4%6%8%10% 12% 14% 169% 14% 20% 22% 24% 2. 3 2T75 2573 2577 24E7 2A 2 2322 2245 2.174 2.100 2042 1.981 1 2 1rea 1.808 1.8 4 36) 34 6 12 170 3,037 2914 2730 2e90 2509 2494 2,404 2382 200 2201 2.166 3274 3 522 4917 43E5 4.11 ang 366 2496 3308 3167 3000 2961 2 2754 2643 6247 5 4.086 3 13 998 63 7.904 7.10 6A24 842 342 4.910 4533 4200 3012 3790 3666 2427 3220 9818 8S1 4) 19. 15.0 6 11 925 779 8244 7105 62a4 5546 4.997 4564 4168 3999 3.ses a571 3.333