1. Compute the payback period, the ARR, and the NPV of these two plans. What are the strengths and weaknesses of these capital budgeting models? 2. Which expansion plan should Manchester choose? Why? 3. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of retum? Manchester Inc. operales a chain of lunch shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,940,000. Expected annual net cash inflows are $1,550,000 with zero residual value at the end of ten years. Under Plan B, Manchester would open three larger shops at a cost of $8,840,000. This plan is expected to generate net cash inflows of $1,050,000 per year for ten years, the estimated life of the properties. Estirnated residual value is $1,025,000. Manchester uses straight-line depreclation and requires an annual retum of 6%. (Click the icon to view the present value anntily factor table. (Click the icon to view the present value tactor table.) (Click the icon to view the future value annuity factor table.) (Click the icon to view the future value factor table.) Rend the requirements. Requirement 1. Compute the payback period, the ARR, and the NPV of these two plans. What are the strengths and weaknesses of these capital budgeting models? Begin by computing the payback period for both plans. (Round your answers to one decimal place.) Now compute the ARR (accounting rate of return) for both plans. (Round the percentages to the nearest lenth percent.) Next compute the NPV (net present value) under each plan. Begin with Plan A, then compute Plan B. (Round your answers to the nearest whole dollar and use parentheses or a minus sign to represent a negative NPV.) Net present value of Plan A Requirements 1. Compute the payback period, the ARR, and the NPV of these two plans. What are the strengths and weaknesses of these capital budgeting modeis? 2. Which expansion plan should Manchester choose? Why? 3. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of retum? Present Value of Annuity of $1 Reference Reference Reference
