Cuppa Inc. operates a chain of doughnut shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,740,000.. Expected annual net cash inflows are $1,500,000 with zero residual value at the end often years. Under Plan B,Cuppa would open three larger shops at a cost of$8,540,000.This plan is expected to generate net cash inflows of $1,050,000per year for ten years, the estimated life of the properties. Estimated residual value is $925,000. Cuppa uses straight-line depreciation and requires an annual return of 8%.

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.)

Plan A (in years)	5.8
Plan B (in years)	8.1

Now compute the ARR (accounting rate of return) for both plans. (Round the percentages to the nearest tenth percent.)

Plan A		_____ %
Plan B		_____ %

Net Present Value of Plan A:______ round to nearest whole dollar

Net Present Value of Plan B:______ round to nearest whole dollar