Cuppa Inc operates a chain of snack shops. The company is considering two possible expansion plans plan a would be to open eight smaller shops at a cost of $8,840,000 expected annual net cash inflows are $1,650,000.with zero residual value at the end of 10 years.

Under Plan B, Cuppa would open three larger shops at a cost of $8,640,000. This plan is expected to generate net cash inflows of $1,500,000 per year for 10 years. The estimated life of properties estimated residual value is $1,000,000. Cuppa use a straight line depreciation and requires an annual return of 8%.

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Requirement 1. Compute the paybock period, the ARR, and the NPV of these two plans. What are the strengths and weaknesses of these capital budpoling modeis? Begin ty computing the payback period for both plans. (Round your anwwers to one decimal place) Plan A (in years) Plan B (in years) Now compule the ARR (accounting tate of returs) for both plans. (Round the percentages to the nearet tente percent) PlanA Pian 1 represent a negative Nipy. Makch the tem with the strengths and weaknesses listed for each of the three capial budgeting modele. Requirement 2. Which expansion plan should Cuppa choose? Why? Recommendation: Invest in . It has the net present value. It also has a payback period. Requirement 3. 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%. Reference the company's hurdle rate of 8%. Reference Reference Reference 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 models? 2. Which expansion plan should Cuppa choose? Why? 3. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return