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Lapos Company operates a chain of sandwich shops. (Click the icon to view additional information.) Read the requirements. Requirement 1. Compute the payback, the ARR, the NPV, and the profitability index of these two plans. Calculate the payback for both plans. (Round your answers to one decimal place, XX.) Plan A Plan B = + SOCCES (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) Payback years years
- X More info The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,440,000. Expected annual net cash inflows are $1,525,000 for 10 years, with zero residual value at the end of 10 years. Under Plan B, Lapos Company would open three larger shops at a cost of $8,150,000. This plan is expected to generate net cash inflows of $1,030,000 per year for 10 years, the estimated useful life of the properties. Estimated residual value for Plan B is $1,300,000. Lapos Company uses straight-line depreciation and requires an annual return of 7%. Print Done
Requirements 1. Compute the payback, the ARR, the NPV, and the profitability index of these two plans. 2. What are the strengths and weaknesses of these capital budgeting methods? 3. Which expansion plan should Lapos Company choose? Why? 4. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return? Print Done I X