Jo Jo Inc. operates a chain of doughnut shops. The company is considering two possible expansion plans. Plan A would ope at the end of ten years. Under Plan B, Jo Jo would open three larger shops at a cost of $8,040,000. This plan is expected to value is $1,100,000. Jo Jo 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 present value factor (Click the icon to view the future value annuity factor table.) (Click the icon to view the future value factor t Read the requirements. Reference Present Value of Annuity of $1 5% 6% 8% 10% Periods 19 2% 3% 4% 12% 14% 16% 18% 20% 0.990 | 0.980 | 0.971 | 0.962 | 0.952 | 0.943 | 0.926 | 0.909 | 0.893 | 0.877 | 0.862 | 0.847 | 0.833 2 1,970 1.942 1.913 1.86 1.859 1.833 1.783 1.736 1.690 1647 1605 1.566 1.528 3 2.941 2.884 2.829 2.775 23 2.63 2.577 2.487 2.402 2.322 2.246 2.174 2.106 4 3.902 3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2.798 2.6902.589 4.853 4.713 4.580 4.452 4.329 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 6 5,795 5.601 .417 .242 5.076 4.917 4.623 4.355 4.111 3.89 3.6853.498 3.326 7 6.728 6.472 6.230 6.002 5.786 5.582 5.206 4.868 4564 4.288 4.039 3.812 3.605 8 7.652 7.325 7.020 6.733 6.463 6.210 5.747 5.335 4.968 4.639 4.344 4.078 3.837 9 8.566 8.162 7.786 7.435068026.247 5.759 5.328 4.946 4.607 4.303 4.031 10 9.471 8.983 8.530 8.111 7.22 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192 11 10.368 9.787 9.253 8.760 8.306 7.887 7139 6,.495 5.938 5,.453 5.029 4.656 4.327 12 11.255 10.575 9.954 9.385 8.863 8.384 7.536 6.814 6.194 5.660 5.197 4.793 4.439 13 12.134 11.348 10.635 9.986 9.394 8853 7.904 7.103 6.424 5.842 5.342 4.910 4533 14 13.004 12.106 11.296 10.563 9.899 9.29s 8.24 7.3676.628 6.0025.468 5.008 4.611 15 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7.606 6.811 6.142 5.575 5.092 4.675 20 18.046 16.a51 1487 13.590 12.462 11.470 9.818 8.514.469 6.623 5.929 5.353 4.870 25 22.023 19.523 17.413 15.622 14.094 12.783 10.675 .77 7.843 6.873 6.097 5.467 4.948 30 25.808 22.396 1.600 17.22 15.372 13.765 112589.427 8.055 7.003 6.177 5.517 4.979 o r 40 32.835 27.355 23.115 19.793 17.159 15.046 11.925 9.779 8.244 7.105 6.233 5.548 4.997 Reference Present Value of $1 Periods | 1% | 2% | 3% | 4% | 5% | 69 896 | 10% | 12% | 14% | 16% | 18% | 20% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 20.980 0.961 0.943 0.925 0.907 0.890 0.857 0.826 0.797 0.769 0.743 0.718 0.694 30.971 0.942 0.915 0.889 0.864 0.840 0.794 0.751 0.712 0.675 0.641 0.609 0.579 4 0.961 0.924 0.888 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 5 0.951 0.906 0.863 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.476 0.437 0.402 6 0.942 0.888 0.837 0.790 0.746 0.705 0.630 0.564 0.507 0.456 0.410 0.370 0.335 7 0.933 0.871 0.8130.760 0.711 0.665 0.583 0.513 0.452 0.400 0.354 0.314 0.279 8 0.923 0.853 0.7890.731 0.677 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0.233 9 0.914 0.837 0.766 0.703 0.645 0.5920.500 0.424 0.361 0.308 0.263 0.225 0.194 10 0.905 0.820 0.744 0.676 0.614 0.558 0.463 0.386 0.322 0.270 0.227 0.191 0.162 11 0.896 0.804 0.722 0.650 0.585 0.527 0.429 0.350 0.287 0.237 0.195 0.162 0.135 12 0.887 0.788 0.701 0.625 0.557 0.497 0.397 0.319 0.257 0.208 0.168 0.137 0.112 13 0.879 0.773 0.681 0.601 0.530 0.469 0.368 0.290 0.229 0 14 15 0.182 0.145 0.116 0.093 0.870 | 0.758 | 0.661 | 0.577 | 0.505 | 0.442 | 0.340 | 0.263 | 0.205 | 0.160 | 0.125 0.099 0.078 0.861 | 0.743 | 0.642 | 0.555 | 0.481 | 0.417 | 0.315 | 0.239 0.183 | 0.140 0.108 0.084 0.065 20 0.820 0.673 0.554 0.456 0.377 0.312 0.215 0.149 0.104 0.073 0.051 0.037 0.026 25 0.780 | 0.610 0.478 | 0.375 | 0.295 | 0.233 | 0.146 | 0.092 | 0.059 | 0.038 | 0.024 | 0.016 0.010 30 0.74 0.552 | 0.412 | 0.308 | 0.231 | 0.174 | 0.099 | 0.057 | 0.033 | 0.020 0.012 0.00 0.004 40 | 067 0.453 | 0.307 | 0.208 | 0.142 | 0.097 | 0.046 | 0.022 | 0.011 | 0.005 | 0.003 | 0.001 | 0.001 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? Plan A years Now compute the ARR (accounting rate of return) for both plans. (Round the percentages to the nearest tenth percent.) Plan A ]% Plan B [ ]% Net present value of Plan A Net present value of Plan B Match the term with the strengths and weaknesses listed for each of the three capital budgeting models. is based on cash flows, can be used to assess profitability, and takes into account the time value of money. It has none of the weaknesses of the other two models is easy to understand, is based on cash flows, and highlights risks. However,it ignores profitability and the time value of money can be used to assess profitability, but it ignores the time value of money Requirement 2. Which expansion plan should Jo Jo choose? Why? Recommendation: Invest in. it has thenet 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[ 7the company's hurdle rate of 10%. Match the term with the strengths and weaknesses listed for each of the three capital budgeting models is based on cash flows, can be used to assess profitability, and takes into account the time value of money. It has none of the weaknesses of the other two models. Accounting rate of return Net present value Payback method is easy to understand, is based on cash flows, and highlights risks. However, it ignores profitability and the time value of money can be used to assess profitability, but it ignores the time value of money Match the term with the strengths and weaknesses listed for each of the three capital budgeting models is based on cash flows, can be used to assess profitability, and takes into account the time value of money. It has none of the weaknesses of the other two models. is easy to understand, is based on cash flows, and highlights risks. However, it ignores Accounting rate of return Net present value Payback method profitability and the time value of money can be used to assess profitability, but it ignores the time value of money. plan should Jo Jo choose? Why? 1. dation It has the l I net present value. It also has a | l payback period. Match the term with the strengths and weaknesses listed for each of the three capital budgeting models. is based on cash flows, can be used to assess profitability, and takes into account the time value of money. It has none of the weaknesses of the other two models. is easy to understand, is based on cash flows, and highlights risks. However, it ignores profitability and the time value of money can be used to assess profitability, but it ignores the time value of money lan should Jo Jo choose? Why? Accounting rate of return Net present value Payback method t has the net present value. t also has a payback period. IRR. How does the IRR compare with the company's required rate of return? can be used to assess profitability, but it ignores the time value of money Requirement 2. Which expansion plan should Jo Jo choose? Why? Recommendation: Invest inhas thenet present value. It also has a Requirement 3. Estimate Pl The IRR (internal rate of retu This rate ,the company's hurdle rate of 10% payback period. r does the IRR compare with the company's required rate of return? Plan A Choose from any list or enter any number in the input fields and then continue to the next question. F2 F1 time value of money. It has none of the weaknesses of the other two models. is easy to understand, is based on cash flows, and highlights risks. However, it ignores profitability and the time value of money. can be used to assess profitability, but it ignores the time value of money. Requirement 2. Which expansion plan should Jo Jo choose? Why? Recommendation: Invest in | | . It has the | T| net present value. It also has a | Requirement 3. Estimate Plan A's IRR. How do The IRR (internal rate of return) of Plan A is betw This rate | payback period bare with the company's required rate of return? higher lower the company's hurdle rate of 10%. Choose from any list or enter any number in the input fields and then continue to the next question. profitability and the time value of money can be used to assess profitability, but it ignores the time value of money Requirement 2. Which expansion plan should Jo Jo choose? Why? Recommendation: Invest in | |1. 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 companys The IRR (internal rate of return) of Plan A is between This rate[ the company's hurdle rate of 10%, Choose from any list or enter any number in the input fields and then continue to the next question. longer shorter esc F4 FI F2 the time value of Requirement 2. Which expansion plan should Jo Jo choose? Why? Recommendation: Invest in 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 v. It has the net present value. It also hasa Vpayback period This ratethe companys hurdie rat 14% and 16% 10% and 12% 12% and 14% ntinue to the next question. Choose from any list or enter any number in the inj esc F2 profitability and the time value of money can be used to assess profitability, but it ignores the time value of money Requirement 2. Which expansion plan should Jo Jo 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 'I the company's hurdle rate of 10%. Choose fr number in the input fields and then continue to the next question. does not exceed exceeds : OF3 F1 F2 Jo Jo Inc. operates a chain of doughnut shops. The company is considering two possible expansion plans. Plan A would ope at the end of ten years. Under Plan B, Jo Jo would open three larger shops at a cost of $8,040,000. This plan is expected to value is $1,100,000. Jo Jo 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 present value factor (Click the icon to view the future value annuity factor table.) (Click the icon to view the future value factor t Read the requirements. Reference Present Value of Annuity of $1 5% 6% 8% 10% Periods 19 2% 3% 4% 12% 14% 16% 18% 20% 0.990 | 0.980 | 0.971 | 0.962 | 0.952 | 0.943 | 0.926 | 0.909 | 0.893 | 0.877 | 0.862 | 0.847 | 0.833 2 1,970 1.942 1.913 1.86 1.859 1.833 1.783 1.736 1.690 1647 1605 1.566 1.528 3 2.941 2.884 2.829 2.775 23 2.63 2.577 2.487 2.402 2.322 2.246 2.174 2.106 4 3.902 3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2.798 2.6902.589 4.853 4.713 4.580 4.452 4.329 4.212 3.993 3.791 3.605 3.433 3.274 3.127 2.991 6 5,795 5.601 .417 .242 5.076 4.917 4.623 4.355 4.111 3.89 3.6853.498 3.326 7 6.728 6.472 6.230 6.002 5.786 5.582 5.206 4.868 4564 4.288 4.039 3.812 3.605 8 7.652 7.325 7.020 6.733 6.463 6.210 5.747 5.335 4.968 4.639 4.344 4.078 3.837 9 8.566 8.162 7.786 7.435068026.247 5.759 5.328 4.946 4.607 4.303 4.031 10 9.471 8.983 8.530 8.111 7.22 7.360 6.710 6.145 5.650 5.216 4.833 4.494 4.192 11 10.368 9.787 9.253 8.760 8.306 7.887 7139 6,.495 5.938 5,.453 5.029 4.656 4.327 12 11.255 10.575 9.954 9.385 8.863 8.384 7.536 6.814 6.194 5.660 5.197 4.793 4.439 13 12.134 11.348 10.635 9.986 9.394 8853 7.904 7.103 6.424 5.842 5.342 4.910 4533 14 13.004 12.106 11.296 10.563 9.899 9.29s 8.24 7.3676.628 6.0025.468 5.008 4.611 15 13.865 12.849 11.938 11.118 10.380 9.712 8.559 7.606 6.811 6.142 5.575 5.092 4.675 20 18.046 16.a51 1487 13.590 12.462 11.470 9.818 8.514.469 6.623 5.929 5.353 4.870 25 22.023 19.523 17.413 15.622 14.094 12.783 10.675 .77 7.843 6.873 6.097 5.467 4.948 30 25.808 22.396 1.600 17.22 15.372 13.765 112589.427 8.055 7.003 6.177 5.517 4.979 o r 40 32.835 27.355 23.115 19.793 17.159 15.046 11.925 9.779 8.244 7.105 6.233 5.548 4.997 Reference Present Value of $1 Periods | 1% | 2% | 3% | 4% | 5% | 69 896 | 10% | 12% | 14% | 16% | 18% | 20% 1 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 20.980 0.961 0.943 0.925 0.907 0.890 0.857 0.826 0.797 0.769 0.743 0.718 0.694 30.971 0.942 0.915 0.889 0.864 0.840 0.794 0.751 0.712 0.675 0.641 0.609 0.579 4 0.961 0.924 0.888 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 5 0.951 0.906 0.863 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.476 0.437 0.402 6 0.942 0.888 0.837 0.790 0.746 0.705 0.630 0.564 0.507 0.456 0.410 0.370 0.335 7 0.933 0.871 0.8130.760 0.711 0.665 0.583 0.513 0.452 0.400 0.354 0.314 0.279 8 0.923 0.853 0.7890.731 0.677 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0.233 9 0.914 0.837 0.766 0.703 0.645 0.5920.500 0.424 0.361 0.308 0.263 0.225 0.194 10 0.905 0.820 0.744 0.676 0.614 0.558 0.463 0.386 0.322 0.270 0.227 0.191 0.162 11 0.896 0.804 0.722 0.650 0.585 0.527 0.429 0.350 0.287 0.237 0.195 0.162 0.135 12 0.887 0.788 0.701 0.625 0.557 0.497 0.397 0.319 0.257 0.208 0.168 0.137 0.112 13 0.879 0.773 0.681 0.601 0.530 0.469 0.368 0.290 0.229 0 14 15 0.182 0.145 0.116 0.093 0.870 | 0.758 | 0.661 | 0.577 | 0.505 | 0.442 | 0.340 | 0.263 | 0.205 | 0.160 | 0.125 0.099 0.078 0.861 | 0.743 | 0.642 | 0.555 | 0.481 | 0.417 | 0.315 | 0.239 0.183 | 0.140 0.108 0.084 0.065 20 0.820 0.673 0.554 0.456 0.377 0.312 0.215 0.149 0.104 0.073 0.051 0.037 0.026 25 0.780 | 0.610 0.478 | 0.375 | 0.295 | 0.233 | 0.146 | 0.092 | 0.059 | 0.038 | 0.024 | 0.016 0.010 30 0.74 0.552 | 0.412 | 0.308 | 0.231 | 0.174 | 0.099 | 0.057 | 0.033 | 0.020 0.012 0.00 0.004 40 | 067 0.453 | 0.307 | 0.208 | 0.142 | 0.097 | 0.046 | 0.022 | 0.011 | 0.005 | 0.003 | 0.001 | 0.001 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? Plan A years Now compute the ARR (accounting rate of return) for both plans. (Round the percentages to the nearest tenth percent.) Plan A ]% Plan B [ ]% Net present value of Plan A Net present value of Plan B Match the term with the strengths and weaknesses listed for each of the three capital budgeting models. is based on cash flows, can be used to assess profitability, and takes into account the time value of money. It has none of the weaknesses of the other two models is easy to understand, is based on cash flows, and highlights risks. However,it ignores profitability and the time value of money can be used to assess profitability, but it ignores the time value of money Requirement 2. Which expansion plan should Jo Jo choose? Why? Recommendation: Invest in. it has thenet 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[ 7the company's hurdle rate of 10%. Match the term with the strengths and weaknesses listed for each of the three capital budgeting models is based on cash flows, can be used to assess profitability, and takes into account the time value of money. It has none of the weaknesses of the other two models. Accounting rate of return Net present value Payback method is easy to understand, is based on cash flows, and highlights risks. However, it ignores profitability and the time value of money can be used to assess profitability, but it ignores the time value of money Match the term with the strengths and weaknesses listed for each of the three capital budgeting models is based on cash flows, can be used to assess profitability, and takes into account the time value of money. It has none of the weaknesses of the other two models. is easy to understand, is based on cash flows, and highlights risks. However, it ignores Accounting rate of return Net present value Payback method profitability and the time value of money can be used to assess profitability, but it ignores the time value of money. plan should Jo Jo choose? Why? 1. dation It has the l I net present value. It also has a | l payback period. Match the term with the strengths and weaknesses listed for each of the three capital budgeting models. is based on cash flows, can be used to assess profitability, and takes into account the time value of money. It has none of the weaknesses of the other two models. is easy to understand, is based on cash flows, and highlights risks. However, it ignores profitability and the time value of money can be used to assess profitability, but it ignores the time value of money lan should Jo Jo choose? Why? Accounting rate of return Net present value Payback method t has the net present value. t also has a payback period. IRR. How does the IRR compare with the company's required rate of return? can be used to assess profitability, but it ignores the time value of money Requirement 2. Which expansion plan should Jo Jo choose? Why? Recommendation: Invest inhas thenet present value. It also has a Requirement 3. Estimate Pl The IRR (internal rate of retu This rate ,the company's hurdle rate of 10% payback period. r does the IRR compare with the company's required rate of return? Plan A Choose from any list or enter any number in the input fields and then continue to the next question. F2 F1 time value of money. It has none of the weaknesses of the other two models. is easy to understand, is based on cash flows, and highlights risks. However, it ignores profitability and the time value of money. can be used to assess profitability, but it ignores the time value of money. Requirement 2. Which expansion plan should Jo Jo choose? Why? Recommendation: Invest in | | . It has the | T| net present value. It also has a | Requirement 3. Estimate Plan A's IRR. How do The IRR (internal rate of return) of Plan A is betw This rate | payback period bare with the company's required rate of return? higher lower the company's hurdle rate of 10%. Choose from any list or enter any number in the input fields and then continue to the next question. profitability and the time value of money can be used to assess profitability, but it ignores the time value of money Requirement 2. Which expansion plan should Jo Jo choose? Why? Recommendation: Invest in | |1. 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 companys The IRR (internal rate of return) of Plan A is between This rate[ the company's hurdle rate of 10%, Choose from any list or enter any number in the input fields and then continue to the next question. longer shorter esc F4 FI F2 the time value of Requirement 2. Which expansion plan should Jo Jo choose? Why? Recommendation: Invest in 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 v. It has the net present value. It also hasa Vpayback period This ratethe companys hurdie rat 14% and 16% 10% and 12% 12% and 14% ntinue to the next question. Choose from any list or enter any number in the inj esc F2 profitability and the time value of money can be used to assess profitability, but it ignores the time value of money Requirement 2. Which expansion plan should Jo Jo 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 'I the company's hurdle rate of 10%. Choose fr number in the input fields and then continue to the next question. does not exceed exceeds : OF3 F1 F2
