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. Yogurt would focus on southern California and open six stores for a total cost of $2,500,000. Selected data regarding the two proposals have been assembled by the controller of V. S. Yogurt as follows.

	Proposal A		Proposal B
Required investment	$	3,150,000	$	2,500,000
Estimated life of store locations		7 years		7 years
Estimated salvage value	$	0	$	400,000
Estimated annual net cash flow		750,000		570,000
Depreciation on equipment (straight-line basis)		450,000		300,000
Estimated annual net income		?		?

Required: a. For each proposal, compute the following. Assume discounted at management's required rate of return of 15 percent. Use Exhibits 26-3 and 26-4 where necessary.

(1) Payback period (2) Return on average investment (3) Net present value b. On the basis of your analysis in part a, state which proposal you would recommend.