Dan Dixon, majority stockholder and president of Dixon, Inc., is working with his top managers on future plans for the company. As the company's managerial accountant, you make recommendations to the management team Read the elitement Requirement 4. Division Dis considering two possible expansion plans Plan A would expand a current product line at a cost of $8,410,000. Expected annual net cash inflows 10 years. Under Plan B. Division D would begin producing a new product at a cost of $8,150,000 This plan is expected to generate net cash inflows of $1,090,000 per year for Estimated residual value for Plan B is 51,000,000. Division Duses straight-line depreciation and requires an annual return of 8% 4a. Compute the payback, the ARR the NPV, and the profitability index for both plans, Begin by calculating the payback for both plans. (Round your answers to one decimal place, XX) Amount invested Expected annual net cash inflow Payback Plan A $ 8,410,000 $ 1.500.000 5.6 Plan B 5 8,150,000 15 1,090,000 7.5 Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the nearest tenth percent XX%) Average annual operating income Average amount invested ARR Plan A % Plan B % years years 4. Division D is considering two possible expansion plans. Plan A would expand a current product line at a cost of $8,410,000. Expected annual net cash inflows are $1,500,000, with zero residual value at the end of 10 years. Under Plan B, Division D would begin producing a new product at a cost of $8,150,000. This plan is expected to generate net cash inflows of $1,090,000 per year for 10 years, the estimated useful life of the product line. Estimated residual value for Plan B is $1,000,000. Division D uses straight-line depreciation and requires an annual return of 8%. a. Compute the payback, the ARR, the NPV, and the profitability index for both plans. b. Compute the estimated IRR of Plan A. c. Use Excel to verify the NPV calculations in Requirement 4(a) and the actual IRR for the two plans. How does the IRR of each plan compare with the company's required rate of return? d. Division D must rank the plans and make a recommendation to Dixon's top management team for the best plan. Which expansion plan should Division D choose? Why? Dan Dion, majority stockholde and president of con, Inc., is working with his top managers on future plans for the company. As the company's managerial accountant, you've been asked to analyze the flowing stones and make recommendations to the managementam Read the Requirement 4. Division is considering two possible expansion Plan Awould expand current product linea cost of $8.410,000 Expected annual net cash inflows are $1.500.000, with zero residual vahe at the end of 10 years. Under Plan B. Division woull begin producing a new product at a cost of 8.150.000 This plan is expected to generate net cash flows of 51.000.000 per year for 10 years, the estimated selle of the production Estimated residual value for Plan B 51.000.000 Division Duses straine depreciation and requires an annual return of 4a. Compute the payback the ARR the NPV and the profitability Index for both plans Begin by calculating the payback for both plans (Round your answers to decimal place, XX) Amounted Expected annual net cashow Payback Plan A 8.410.000 1.500 000 5 years Plan $ 8.150.000 100.000 15 Calculate the ARR (accounting rate of return for both plans (Round you to the percent XXX) Average rating home Average amount invested Plan A ARR Plan B
