Glascoe Inc. operates a chain of snack shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,640,000. Expected annual net cash inflows are $1,700,000 with zero residual value at the end of ten years. Under Plan B, Glascoe would open three larger shops at a cost of $8,440,000. This plan is expected to generate net cash inflows of $1,300,000 per year for ten years, the estimated life of the properties. Estimated residual value is $1,100,000. Glascoe uses straight-line depreciation and requires an annual return of 10%. (Click the icon to view the present value annuity factor table.) (Click the icon to view the future value annuity factor table.) Read the requirements. (Click the icon to view the present value factor table.) (Click the icon to view the future value factor table.) 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) Plan B (in years) Present Value of Annuity of $1 Periods 1% Period 1 0.990 Period 2 1.970 Period 3 2.941 Period 4 3.902 Period 5 4.853 Period 6 5.795 Period 7 6.728 Period 8 7.652 Period 9 8.566 Period 10 9.471 2% 3% 4% 0.980 0.971 0.962 8% 10% 12% 0.926 0.909 0.893 1.942 1.913 1.886 2.884 2.829 2.775 1.783 1.736 1.690 3.808 3.717 3.630 4.713 4.580 4.452 5% 6% 0.952 0.943 1.859 1.833 2.723 2.673 2.577 2.487 2.402 3.546 3.465 3.312 3.170 3.037 2.914 4.329 4.212 3.993 3.791 3.605 3.433 3.274 14% 16% 18% 20% 0.877 0.862 0.847 0.833 1.647 1.605 2.322 1.566 1.528 2.246 2.174 2.106 2.798 2.690 2.589 3.127 2.991 5.601 5.417 5.242 6.472 6.230 6.002 7.325 7.020 6.733 8.162 7.786 7.435 8.983 8.530 5.076 4.917 4.623 4.355 4.111 5.786 5.582 5.206 4.868 4.564 6.463 6.210 5.747 5.335 4.968 7.108 6.802 3.889 3.685 3.498 3.326 4.288 4.039 3.812 3.605 4.639 4.344 4.078 3.837 6.247 5.759 5.328 4.946 4.607 4.303 4.031 8.111 7.722 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192 Period 12 11.255 Period 11 10.368 9.787 9.253 8.760 10.575 9.954 9.385 Period 13 12.134 Period 14 13.004 Period 15 13.865 8.306 7.887 8.863 8.384 11.348 10.635 9.986 9.394 8.853 7.904 7.103 6.424 12.106 11.296 10.563 9.899 9.295 8.244 7.367 6.628 12.849 11.938 11.118 10.380 9.712 8.559 7.606 6.811 7.139 7.536 6.814 6.194 6.495 5.938 5.453 5.029 4.656 4.327 5.660 5.197 4.793 4.439 5.842 5.342 4.910 4.533 6.002 5.468 5.008 4.611 6.142 5.575 5.092 4.675 Period 20 18.046 16.351 14.877 13.590 12.462 11.470 9.818 8.514 Period 25 22.023 19.523 17.413 15.622 14.094 12.783 10.675 9.077 7.843 Period 30 25.808 22.396 19.600 17.292 15.372 13.765 11.258 9.427 8.055 Period 40 32.835 27.355 23.115 19.793 17.159 15.046 11.925 9.779 8.244 7.003 7.105 7.469 6.623 5.929 5.353 4.870 6.873 6.097 5.467 4.948 6.177 6.233 5.548 4.997 5.517 4.979 Present Value of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% Period 1 0.990 0.980 0.971 0.962 Period 2 0.980 0.961 0.943 0.925 Period 3 0.971 0.942 0.915 0.889 Period 4 0.961 0.924 0.888 0.855 Period 5 0.951 0.906 0.863 Period 6 0.942 Period 7 0.933 0.822 0.888 0.837 0.790 0.871 0.813 0.760 Period 8 0.923 0.853 0.789 0.731 Period 9 0.914 0.837 0.766 0.703 Period 10 0.905 0.820 0.744 0.676 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 0.907 0.890 0.857 0.826 0.797 0.769 0.743 0.718 0.694 0.864 0.840 0.794 0.751 0.712 0.675 0.641 0.609 0.579 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 0.784 0.747 0.681 0.621 0.567 0.519 0.476 0.437 0.402 0.746 0.705 0.630 0.564 0.507 0.456 0.410 0.370 0.335 0.711 0.665 0.583 0.513 0.452 0.400 0.354 0.314 0.279 0.677 0.627 0.540 0.467 0.404 0.351 0.645 0.592 0.500 0.424 0.361 0.308 0.614 0.558 0.463 0.386 0.322 0.270 0.305 0.266 0.233 0.263 0.225 0.194 0.227 0.191 0.162 Period 11 0.896 0.804 0.722 0.650 Period 12 0.887 0.788 0.701 0.625 0.585 0.527 0.557 0.497 Period 13 0.879 0.773 0.681 0.601 0.530 0.469 Period 14 0.870 0.758 0.661 0.577 0.505 0.442 Period 15 0.861 0.743 0.642 0.555 0.481 0.417 0.429 0.350 0.287 0.237 0.195 0.397 0.319 0.257 0.208 0.168 0.137 0.112 0.368 0.290 0.229 0.182 0.145 0.116 0.093 0.340 0.263 0.205 0.160 0.125 0.099 0.078 0.315 0.239 0.183 0.140 0.108 0.084 0.065 0.162 0.135 Period 20 0.820 0.673 0.554 0.456 0.377 0.312 0.215 Period 25 0.780 0.610 0.478 0.375 0.295 0.233 0.146 Period 30 0.742 0.552 0.412 0.308 0.231 0.174 0.099 Period 40 0.672 0.453 0.307 0.208 0.142 0.097 0.149 0.104 0.073 0.092 0.059 0.038 0.057 0.033 0.020 0.046 0.022 0.011 0.005 0.051 0.037 0.026 0.024 0.016 0.010 0.012 0.007 0.004 0.003 0.001 0.001 Future Value of Annuity of $1 Periods 1% 2% 3% 4% 5% eriod 1 1.000 1.000 1.000 1.000 6% 1.000 1.000 1.000 8% 10% 12% 14% 16% 18% 20% 1.000 1.000 1.000 1.000 1.000 1.000 eriod 2 2.010 2.020 2.030 2.040 2.050 2.060 2.080 2.100 2.120 2.140 2.160 2.180 2.200 eriod 3 3.030 3.060 3.091 3.122 3.153 3.184 3.246 3.310 3.374 3.440 3.506 3.572 3.640 eriod 4 4.060 4.122 4.184 4.246 4.310 4.375 4.506 4.641 4.779 4.921 5.066 5.215 5.368 eriod 5 5.101 5.204 5.309 5.416 5.526 5.637 5.867 6.105 6.353 6.610 6.877 7.154 7.442 eriod 6 6.152 6.308 6.468 6.633 6.802 eriod 7 7.214 7.434 7.662 7.898 8.142 eriod 8 eriod 9 8.286 8.583 8.892 9.214 9.549 9.369 eriod 10 9.755 10.159 10.583 11.027 10.462 10.950 11.464 12.006 12.578 7.336 7.716 8.115 8.536 8.923 9.487 10.089 9.897 10.637 11.436 12.300 11.491 12.488 13.579 14.776 13.181 14.487 15.937 17.549 eriod 11 11.567 12.169 12.808 13.486 14.207 14.972 16.645 18.531 20.655 eriod 12 12.683 13.412 14.192 15.026 15.917 16.870 18.977 21.384 24.133 eriod 13 13.809 14.680 15.618 16.627 17.713 18.882 21.495 24.523 28.029 eriod 14 14.947 15.974 17.086 18.292 19.599 21.015 24.215 27.975 32.393 eriod 15 16.097 17.293 18.599 20.024 21.579 23.276 27.152 31.772 37.280 eriod 20 22.019 24.297 26.870 29.778 33.066 eriod 25 28.243 32.030 36.459 41.646 47.727 eriod 30 34.785 40.568 47.575 56.085 66.439 79.058 113.283 164.494 241.333 356.787 6.975 8.977 9.442 9.930 8.394 19.337 10.730 11.414 13.233 14.240 16.085 17.519 19.086 20.799 21.321 23.521 25.959 12.142 12.916 15.327 16.499 23.045 25.733 28.755 32.150 27.271 30.850 34.931 39.581 32.089 36.786 42.219 48.497 37.581 43.842 43.672 50.818 59.196 51.660 60.965 72.035 249.214 342.603 471.981 530.312 790.948 1,181.88 eriod 40 48.886 60.402 75.401 95.026 120.800 154.762 259.057 442.593 767.091 1,342.025 2,360.757 4,163.213 7,343.85 36.786 45.762 57.275 72.052 54.865 73.106 98.347 133.334 91.025 115.380 146.628 186.688 181.871 Future Value of $1 Periods 1% 2% 3% 4% 5% 6% Period 1 1.010 1.020 1.030 1.040 1.050 1.060 8% 10% 1.080 1.100 12% 14% 16% 18% 20% 1.120 1.140 1.160 1.180 1.200 Period 2 1.020 1.040 1.061 1.082 1.103 1.124 1.166 1.210 1.254 1.300 1.346 1.392 1.440 Period 3 1.030 1.061 1.093 1.125 1.158 1.191 1.260 1.331 1.405 1.482 1.561 1.643 1.728 Period 4 1.041 1.082 1.126 1.170 1.216 1.262 1.360 Period 5 1.051 1.104 1.159 1.217 1.276 1.338 1.469 1.611 1.464 1.574 1.689 1.762 1.925 1.811 2.100 1.939 2.074 2.288 2.488 Period 6 1.062 1.126 1.194 1.265 1.340 1.419 Period 7 1.072 1.149 1.230 1.316 1.407 1.504 1.714 Period 8 1.083 1.172 1.267 1.369 1.477 1.594 1.851 Period 9 1.094 1.195 1.305 1.423 1.551 1.689 Period 10 1.105 1.219 1.344 1.480 1.629 1.791 3.106 1.587 1.772 1.974 1.949 2.211 2.502 2.826 3.185 2.144 2.476 2.853 3.278 3.759 1.999 2.358 2.773 3.252 3.803 4.435 2.159 2.594 3.707 4.411 5.234 2.195 2.436 2.700 2.986 3.583 4.300 5.160 6.192 Period 11 1.116 1.243 1.384 1.539 1.710 1.898 Period 12 1.127 1.268 1.426 1.601 1.796 2.012 2.518 3.138 2.332 2.853 3.479 4.226 4.818 3.896 5.117 5.936 7.288 6.176 7.430 8.916 Period 13 1.138 1.294 1.469 1.665 1.886 2.133 2.720 3.452 4.363 5.492 6.886 8.599 10.699 Period 14 1.149 1.319 Period 15 1.161 1.346 Period 20 1.220 1.486 1.513 1.732 1.980 1.558 1.801 2.079 1.806 2.261 2.937 2.397 3.797 4.887 6.261 7.988 10.147 12.839 3.172 4.177 5.474 7.138 9.266 11.974 15.407 Period 25 1.282 1.641 2.094 Period 30 1.348 1.811 2.427 3.243 4.322 Period 40 1.489 2.208 3.262 4.801 7.040 2.191 2.653 3.207 4.661 6.727 9.646 13.743 19.461 27.393 38.338 2.666 3.386 4.292 6.848 10.835 17.000 26.462 40.874 62.669 95.396 5.743 10.063 17.449 29.960 50.950 85.850 143.371 237.376 10.286 21.725 45.259 93.051 188.884 378.721 750.378 1,469.772 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 Glascoe choose? Why? 3. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return