The investment committee of Auntie Ms Restaurants Inc. is evaluating two restaurant sites. The sites have different

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The investment committee of Auntie M€™s Restaurants Inc. is evaluating two restaurant sites. The sites have different useful lives, but each requires an investment of $ 900,000. The estimated net cash flows from each site are as follows:

The investment committee of Auntie M€™s Restaurants Inc. is evaluating

The committee has selected a rate of 20% for purposes of net present value analysis. It also estimates that the residual value at the end of each restaurant€™s useful life is $ 0; but at the end of the fourth year, Witchita€™s residual value would be $ 500,000.

Instructions
1. For each site, compute the net present value. Use the present value of an annuity of $ 1 table appearing in this chapter (Exhibit 2). (Ignore the unequal lives of the projects.)
2. For each site, compute the net present value, assuming that Witchita is adjusted to a four-year life for purposes of analysis. Use the present value of $ 1 table appearing in this chapter (Exhibit 1).
3. Prepare a report to the investment committee, providing your advice on the relative merits of the twosites.

Net Present Value
What is NPV? The net present value is an important tool for capital budgeting decision to assess that an investment in a project is worthwhile or not? The net present value of a project is calculated before taking up the investment decision at...
Annuity
An annuity is a series of equal payment made at equal intervals during a period of time. In other words annuity is a contract between insurer and insurance company in which insurer make a lump-sum payment or a series of payment and, in return,...
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Related Book For  answer-question

Financial And Managerial Accounting

ISBN: 9781337119207

14th Edition

Authors: Carl S. Warren, James M. Reeve, Jonathan Duchac

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