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Davio operates a chain of sub shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,340,000. Expected annual net cash inflows are $1,650,000 with zero residual value at the end of ten years. Under Plan B, Davio would open three larger shops at a cost of $8,240,000. This plan is expected to generate net cash inflows of $1 ,050,000 per year for ten years, the estimated life of the properties. Estimated residual value is $1,000,000. Davio uses straight-line depreciation and requires an annual return of 6%.

Davio operates a chain of sub shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,340,000.
Expected annual net cash inflows are $1,650,000 with zero residual value at the end of ten years. Under Plan B, Davio would open three larger shops at a cost of
$8,240,000. This plan is expected to generate net cash inflows of $1 ,050,000 per year for ten years, the estimated life of the properties. Estimated residual value is
$1,000,000. Davio uses straight-line depreciation and requires an annual return of 6%.

 
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