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Division D is considering two possible expansion plans. Plan A would expand a current product line at a cost of $8,700,000. Expected annual net cash
Division D is considering two possible expansion plans. Plan A would expand a current product line at a cost of $8,700,000. Expected annual net cash inflows are $1,600,000, 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 $1,050,000 per year for 10 years, the estimated useful life of the product line. Estimated residual value for Plan B is $980,000. Division D uses straight-line depreciation and requires an annual return of 9%. 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, X.X.) Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the nearest tenth percent, X.X%.)
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