Otto Carr owns a chain of car parks in small towns. He wants to expand his business by leasing a suitable site in a city centre. There are two sites that would be appropriate. There is a six-year lease available on the Markets site for £200,000 and a sevenyear lease available on the Riverside site for £300,000. The cost of clearing, marking out and equipping Markets is £120,000. The equivalent figure for Riverside is £100,000. The cash flows (in £000s) arising from these projects are:
(a) Determine the payback period for each site.
(b) Using a discount rate of 8% calculate the net present value for each site.
(c) Which site should Otto acquire and why?