Division D is considering two possible expansion plans. Plan A would expand a current product line at a cost of

$ 8 comma 550 comma 000

.

Expected annual net cash inflows are

$ 1 comma 600 comma 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 comma 150 comma 000

.

This plan is expected to generate net cash inflows of

$ 1 comma 050 comma 000

per year for

10

years, the estimated useful life of the product line. Estimated residual value for Plan B is

$ 1 comma 000 comma 000

.

Division D uses straight-line depreciation and requires an annual return of

10%

.
	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 Dalton's top management team for the best plan. Which expansion plan should Division D choose? Why?