University Collectibles is considering opening new locations in two California college towns. The Berkeley location is estimated to have an initial cost of $1,000,000. The San Diego location is estimated to initially cost $1,600,000. The following information is available:

Berkeley San Diego

Estimated annual aftertax cash inflows $154,000. $263,000

Estimated salvage value $80,000 $116,000

Estimated useful life 20 years 20 years

Minimum required rate of return 12% 10%

Using net present value and payback period, which location should University select and why?