PROBLEM 26.5 Capital Budgeting Using Multiple Models V. S. Yogurt is considering two possible expansion plans. Proposal A involves opening 10 stores in northern California at a total cost of $3,150,000. Under another strategy, Proposal B.V. S. Yo- gurt would focus on southern California and open six stores for a total cost of $2,500,000. Se- lected data regarding the two proposals have been assembled by the controller of V. S. Yogurt as follows: LO1 through 204 Required Investment ......... Estimated life of store locations ......... Estimated salvage value ........................... Estimated annual net cash flow ................ Depreciation on equipment (straight-line basis) ............. Estimated annual net Income ... Proposal A $3,150,000 7 years $ 0 750,000 450,000 Proposal B $2,500,000 7 years $ 400,000 570,000 300,000 Instructions 2. For each proposal, compute the (1) payback period, (2) return on average investment, and (3) net present value, discounted at management's required rate of return of 15 percent. (Round the payback period to the nearest tenth of a year and the return on investment to the nearest tenth of a percent.) b. Based on your analysis in part a, state which proposal you would recommend and explain the reasoning behind your choice