(Click the icon to view Present Value of $1 table.) Locos Company operates a chain of sandwich shops. (Click the icon to view additional information.) Read the requirements. (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.) 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.) Payback Plan A . years Plan B years Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the nearest tenth percent, X.X%) 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.) Plan A: Net Cash PV Factor Present Annuity PV Factor (i=9%, n=10) Years Inflow (i=9%, n=10) Value 1 - 10 Present value of annuity 10 Present value of residual value (Click the icon to view Present Value of $1 table.) Locos Company operates a chain of sandwich shops. (Click the icon to view additional information.) 0 0 0 (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) Plan A: Net Cash Annuity PV Factor PV Factor Present Years Inflow (i=9%, n=10) (i=9%, n=10) Value 1 - 10 Present value of annuity 10 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.) Plan B: Net Cash Annuity PV Factor PV Factor Present Years Inflow (i=9%, n=10) (i=9%, n=10) Value 1 - 10 Present value of annuity 10 Present value of residual value Total PV of cash inflows 0 Initial Investment Net nresent value of Plan B (Click the icon to view Present Value of $1 table.) Locos Company operates a chain of sandwich shops. (Click the icon to view additional information.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) 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. Requirement 3 Which evnansion nlan should Incos Comnany choose? Why? Locos Company operates a chain of sandwich shops. (Click the icon to view additional information.) (Click the icon to view Present Value of $1 table.) Read the requirements. (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.) Malin me lemm wien une surengins and weaknesses listed for each oi ne ioui capital Duageung 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. Requirement 3. Which expansion plan should Locos Company choose? Why? Locos Company should invest in because it has a v payback period, a ARR, a vnet present value, and a v profitability index. 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 9%
