University Collectibles is considering opening new locations in two California college towns. The Berkeley location is estimated
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Question:
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?
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