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(Click the icon to view Present Value of $1 table 1 Limes Company operates a chain of sandwich shops. (Click the icon to view additional information.) 0 Requirements 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, X.X.) Amount invested Expected annual net cash inflow Plan A $ 8,400,000 1,525,000 Plan B 8,250,000 1,000,000 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 Limes Company choose? Why? 4. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return? Payback 5.5 years 8.3 years Print Print Done Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the nearest tenth percent, X.X%.) ARR * More Info - X Plan A Plan B The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,400,000. 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, Limes Company would open three larger shops at a cost of $8,250,000. This plan is expected to generate net cash inflows of $1,000,000 per year for 10 years, the estimated useful life of the properties. Estimated residual value for Plan B is $1,300,000. Limes Company uses straight-line depreciation and requires an annual return of 7%. Choose from any list or enter any number in the input fields and then click Check Answer. Print Done 7 parts remaining Clear All i Reference Present Value of $1 Periods 10% 0.909 0.826 0.751 0.683 0.621 0.564 0.335 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.665 0.627 0.592 0.558 0.527 0.497 0.469 0.513 0.467 0.424 1% 0.990 0.980 0.971 0.961 0.951 0.942 0.933 0.923 0.914 0.905 0.896 0.887 0.879 0.870 0.861 0.853 0.844 0.836 0.828 0.820 0.811 0.803 0.795 0.284 2% 3% 0.980 0.971 0.961 0.943 0.942 0.915 0.924 0.888 0.906 0.863 0.888 0.837 0.871 0.813 0.853 0.789 0.837 0.766 0.820 0.744 0.804 0.722 0.788 0.701 0.773 0.681 0.758 0.661 0.743 0.642 0.7280.623 0.714 0.605 0.700 0.587 0.686 0.570 0.673 0.554 0.660 0.538 0.647 0.522 0.634 0.507 0.386 4% 5% 0.9620.952 0.925 0.907 0.889 0.864 0.855 0.823 0.822 0.784 0.790 0.746 0.760 0.711 0.731 0.677 0.703 0.645 0.676 0.614 0.650 0.585 0.625 0.557 0.601 0.530 0.577 0.505 0.555 0.481 0.534 0.458 0.513 0.494 0.416 0.475 0.396 0.456 0.377 0.439 0.359 0.422 0.342 0.406 0.326 8% 0.926 0.857 0.794 0.735 0.681 0.630 0.583 0.540 0.500 0.463 0.429 0.397 0.368 0.340 7% 0.935 0.873 0.816 0.763 0.713 0.666 0.623 0.582 0.544 0.508 0.475 0.444 0.415 0.388 0.362 0.339 0.317 0.296 0.277 0.258 0.242 0.226 0.211 9% 0.917 0.842 0.772 0.708 0.650 0.596 0.547 0.502 0.460 0.422 0.388 0.356 0.326 0.299 0.275 0.252 0.231 0.212 0.194 0.178 0.164 0.150 0.138 12% 14% 15% 0.893 0.877 0.870 0.797 0.769 0.756 0.712 0.675 0.658 0.636 0.592 0.572 0.567 0.519 0.497 0.507 0.456 0.432 0.452 0.400 0.376 0.404 0.351 0.327 0.361 0.308 0.322 0.270 0.247 0.287 0.237 0.215 0.257 | 0.208 0.187 0.229 0.182 0.163 0.205 0.160 0.141 0.183 0.140 0.123 0.123 0.107 0.146 0.108 0.093 0.130 0.095 0.081 0.116 0.083 0.070 0.104 0.073 0.061 0.093 0.064 0.053 0.083 0.056 0.046 0.074 | 0.049 0.040 16% 0.862 0.743 0.641 0.552 0.476 0.410 0.354 0.305 0.263 0.227 0.195 0.168 0.145 0.125 0.108 0.093 0.080 0.069 0.060 0.051 0.044 0.038 0.033 18% 20% 0.847 0.833 0.7180.694 0.609 0.579 0.516 0.482 0.437 0.402 0.370 0.314 0.279 0.266 0.233 0.225 0.194 0.191 0.162 0.162 0.135 0.137 0.112 0.116 0.093 0.099 0.078 0.084 0.065 0.071 0.054 0.060 0.045 0.051 0.038 0.043 0.031 0.037 0.026 0.031 0.022 0.026 0.018 0.022 0.015 0.442 0.417 0.315 0.350 0.319 0.290 0.263 0.239 0.218 0.198 0.180 0.164 0.149 0.135 0.123 0.112 0.436 0.394 0.371 0.350 0.331 0.312 0.294 0.278 0.262 0.292 0.270 0.250 0.232 0.215 0.199 0.184 0.170 Print Done A Reference Periods 16% 0.862 1.605 2.246 2.798 3.274 3.717 3.465 18% 0.847 1.566 2.174 2.690 3.127 3.498 | 3.812 4.078 4.303 6.710 1% 0.990 1.970 2.941 3.902 4.853 5.795 6.728 7.652 8.566 9.471 10.368 11.255 12.134 13.004 13.865 14.718 15.562 16.398 17.226 18.046 18.857 19.660 20.456 Present Value of Ordinary Annuity of $1 2% 3% 4% 5% 6% 7% 8% 9% 10% 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 1.942 1.913 1.886 1.859 1.833 | 1.8081.783 1.759 1.736 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 3.808 3.630 3.546 3.387 3.312 3.240 3.170 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 6.472 6.230 6.002 5.786 5.582 5.389 5.206 5.033 4.868 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 8.162 7.786 7.435 7.108 6.802 6.515 6.247 5.995 5.759 8.983 8.530 8.111 7.722 7.360 7.024 6.418 6.145 9.787 9.253 8.760 8.306 7.887 7.499 | 7.139 6.805 6.495 10.575 9.954 9.385 8.863 8.384 7.943 7.536 7.161 6.814 11.348 10.635 9.986 9.394 8.853 8.358 7.904 7.487 7.103 12.106 11.296 10.563 9.899 9.295 8.745 8.244 7.786 7.367 12.849 11.938 11.118 10.380 9.712 9.108 8.559 8.061 7.606 13.578 12.561 | 11.652 | 10.838 10.106 8.851 8.313 7.824 14.292 13.166 12.166 11.274 10.477 9.122 8.544 8.022 14.992 13.754 12.659 11.690 10.828 10.059 9.372 8.756 8.201 15.678 14.324 13.134 12.085 11.158 10.336 9.604 8.950 8.365 16.351 14.877 13.590 12.462 11.470 10.594 9.818 9.129 8.514 17.011 15.415 14.029 12.821 11.764 10.836 10.017 9.292 8.649 17.658 15.937 14.451 13.163 12.042 11.061 10.2019.442 8.772 18.292 16.444 14.857 13.489 12.303 11.272 10.371 9.580 8.883 12% 14% 0.893 0.877 1.6901.647 2.402 2.322 3.037 2.914 3.605 3.433 4.111 3.889 4.564 4.288 4.968 4.639 5.328 4.946 5.650 5.216 5.938 5.453 5.660 6.424 5.842 6.628 6.002 6.811 6.142 6.974 6.265 7.120 6.373 7.250 6.467 7.366 6.550 7.469 6.623 6.687 7.645 6.743 7.718 6.792 15% 0.870 1.626 2.283 2.855 3.352 3.784 4.160 4.487 4.772 5.019 5.234 5.421 5.583 5.724 5.847 5.954 6.047 6.128 6.198 6.259 6.312 6.359 6.399 3.685 4.039 4.344 4.607 4.833 5.029 5.197 5.342 5.468 20% 0.833 1.528 2.106 2.589 2.991 3.326 3.605 3.837 4.031 4.192 4.327 4.439 4.533 4.611 4.675 4.730 4.775 4.812 4.844 4.870 4.891 6.194 5.575 4.494 4.656 4.793 4.910 5.008 5.092 5.162 5.222 5.273 5.316 5.353 5.384 5.410 5.432 5.669 5.749 5.818 5.877 5.929 5.973 6.011 6.044 9.763 7.562 4.909 4.925 Print Done Done A Reference Future Value of $1 Periods 4% 5% 6% 7% 8% 9% 10% 1% 1.010 1.020 1.030 1.041 1.051 2% 1.020 1.040 1.061 1.082 1.104 3% 1.030 1.061 1.093 1.126 1.159 1.194 1.230 1.267 1.305 1.344 1.082 1.125 1.170 1.217 1.103 1.158 1.216 1.276 1.210 1.331 1.464 1.611 12% 1.120 1.254 1.405 1.574 1.762 1.974 2.211 2.476 2.773 3.106 3.479 1.265 1.062 1.072 1.083 1.094 1.105 1.116 1.127 1.126 1.149 1.172 1.195 1.219 1.316 1.369 1.423 1.480 1.772 1.949 2.144 2.358 2.594 1.124 1.191 1.262 1.338 1.419 1.504 1.594 1.689 1.791 1.898 2.012 2.133 2.261 2.397 2.540 2.693 2.854 3.026 1.340 1.407 1.477 1.551 1.629 1.710 1.796 1.886 1.980 2.079 1.539 1.384 1.426 8 8 8 866 = 6 Gia si so 0 - 0 0 - 0 1.601 3.896 1.138 14% 1.140 1.300 1.482 1.689 1.925 2.195 2.502 2.853 3.252 3.707 4.226 4.818 5.492 6.261 7.138 8.137 9.276 10.58 12.06 13.74 15.67 17.86 20.36 1.145 1.225 1.311 1.403 1.501 1.606 1.718 1.838 1.967 2.105 2.252 2.410 2.579 2.759 2.952 3.159 3.380 3.617 3.870 4.141 4.430 4.741 1.469 15% 1.150 1.323 1.521 1.749 2.011 2.313 2.660 3.059 3.518 4.046 4.652 5.350 6.153 7.076 8.137 9.358 10.76 12.38 14.23 16.37 18.82 21.64 24.89 1.166 1.260 1.360 1.469 1.587 1.714 1.851 1.999 2.159 2.332 2.518 2.720 2.937 3.172 3.426 3.700 3.996 4.316 4.661 5.034 5.437 5.871 1.188 1.295 1.412 1.539 1.677 1.828 1.993 2.172 2.367 2.580 2.813 3.066 3.342 3.642 3.970 4.328 4.717 5.142 5.604 6.109 6.659 7.258 1.243 1.268 1.294 1.319 1.346 1.373 1.400 1.428 1.457 1.486 4.363 4.887 1.149 1.161 1.173 1.665 1.732 1.801 1.513 1.558 5.474 1.184 2.853 3.138 3.452 3.798 4.177 4.595 5.054 5.560 6.116 6.727 7.400 8.140 8.954 1.605 1.653 1.702 1.754 1.806 1.860 1.916 1.974 1.873 1.948 2.026 2.107 2.191 2.279 2.370 2.465 1.196 1.208 1.220 1.232 1.245 1.257 2.183 2.292 2.407 2.527 2.653 2.786 2.925 3.072 3.207 6.130 6.866 7.690 8.613 9.646 10.80 12.10 13.55 1.516 1.546 1.577 3.400 3.604 3.820 Print Done 0 Reference Periods 1% 1.000 2.010 3.030 4.060 5.101 6.152 7.214 8.286 9.369 10.46 2% 1.000 2.020 3.060 4.122 5.204 6.308 7.434 8.583 9.755 10.95 12.17 13.41 14.68 15.97 17.29 18.64 20.01 21.41 22.84 24.30 10% 1.000 2.100 3.310 4.641 6.105 7.716 9.487 11.44 13.58 15.94 14% 1.000 2.140 3.440 4.921 6.610 8.536 10.73 13.23 16.09 19.34 3% 1.000 2.030 3.091 4.184 5.309 6.468 7.662 8.892 10.16 11.46 12.81 14.19 15.62 17.09 18.60 20.16 21.76 23.41 25.12 26.87 28.68 30.54 32.45 11.57 Future Value of Ordinary Annuity of $1 4% 5% 6% 7% 8% 9% 1.000 1.000 1.000 1.000 1.000 1.000 2.040 2.050 2.060 2.070 2.080 2.090 3.122 3.153 3.184 3.215 3.246 3.278 4.246 4.310 4.375 4.440 4.506 4.573 5.416 5.526 5.637 5.751 5.867 5.985 6.633 6.802 6.975 7.153 7.336 7.523 7.898 8.142 8.394 8.654 8.923 9.200 9.214 9.549 9.897 10.260 10.64 11.03 10.58 11.03 11.49 11.98 12.49 13.02 12.01 12.58 13.18 13.82 14.49 15.19 13.49 14.21 14.97 15.78 16.65 17.56 15.03 15.92 16.87 17.89 18.98 20.14 16.63 17.71 18.88 20.14 21.50 22.95 18.29 19.60 21.02 22.55 24.21 26.02 20.02 21.58 23.28 25.13 29.36 21.82 23.66 25.67 27.89 30.32 33.00 23.70 25.84 28.21 30.84 33.75 36.97 25.65 28.13 30.91 34.00 37.45 41.30 27.67 30.54 33.76 37.38 41.45 46.02 29.78 33.07 36.79 41.00 45.76 51.16 31.97 35.72 39.99 44.87 50.42 56.76 34.25 38.51 43.39 49.01 55.46 62.87 36.62 41.43 47.00 53.44 60.89 69.53 15% 1.000 2.150 3.473 4.993 6.742 8.754 11.07 13.73 16.79 20.30 24.35 29.00 34.35 40.50 47.58 55.72 65.08 75.84 88.21 12% 1.000 2.120 3.374 4.779 6.353 8.115 10.09 12.30 14.78 17.55 20.65 24.13 28.03 32.39 37.28 42.75 48.88 55.75 63.44 72.05 81.70 92.50 104.6 12.68 13.81 14.95 16.10 27.15 18.53 21.38 24.52 27.98 31.77 35.95 40.54 45.60 51.16 57.28 64.00 17.26 18.43 23.04 27.27 32.09 37.58 43.84 50.98 59.12 68.39 78.97 91.02 104.8 120.4 138.3 102.4 19.61 20.81 22.02 23.24 24.47 25.72 25.78 27.30 71.40 118.8 137.6 159.3 28.85 79.54 Print Done Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the nearest tenth percent, X.X%.) Average annual operating income Average amount invested ARR Plan A Plan B Caclulate the NPV (net present value) of each plan. Begin by calculating the NPV of Plan A. (Complete all answer boxes. Enter a "0" for any zero balances or amounts that do not apply to the plan. Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) Net Cash Inflow Annuity PV Factor (i=8%, n=10) PV Factor (i=8%, n=10) Present Value Plan A: Years 1 - 10 10 Present value of annuity Present value of residual value Total PV of cash inflows 0 Initial Investment Net present value of Plan A Calculate the NPV of Plan B. (Complete all answer boxes. Enter a "0" for any zero balances or amounts that do not apply to the plan. Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) Net Cash Present Plan B: Years 1 - 10 Annuity PV Factor (i=8%, n=10) PV Factor (i=8%, n=10) Inflow Value 10 Present value of annuity Present value of residual value Total PV of cash inflows Initial Investment 0 Net present value of Plan B Calculate the profitability index of these two plans. (Round to two decimal places X.XX.) = Profitability index Plan A Plan B Requirement 2. What are the strengths and weaknesses of these capital budgeting methods? Match the term with the strengths and weaknesses listed for each of the four capital budgeting models. Capital Budgeting Method Strengths/Weaknesses of Capital Budgeting Method is based on cash flows, can be used to assess profitability, and takes into account the time value of money. It has none of the weaknesses of the other models Is easy to understand, is based on cash flows, and highlights risks. However, it ignores profitability and the time value of money. Can be used to assess profitability, but it ignores the time value of money. It allows us to compare alternative investments in present value terms and it also accounts for differences in the investments' initial cost. It has none of the weaknesses of the other models. Choose from any drop-down list and then click Check Answer. Requirement 3. Which expansion plan should Lulus Company choose? Why? Lulus Company should invest in because it has a payback period, a ARR, a v net present value, and a profitability index. Click to select your answer(s) and then click Check Answer. Requirement 4. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return? The IRR (internal rate of return) of Plan A is between This rate the company's hurdle rate of 8%