Lajos Company operates a chain of sandwich shops:
Lolas Company operates a chain of sandwich shops Click the icon to view additional Information) Click the icon to view Present Value of $1 table) Read the requirements Click the icon to view Present Value of Ordinary Annuity of $1 table) Click the icon to view Future Value of $1 table) Click the iconi c Valun das Angebot able Requirement 1. Compute the payback, the ARR the NPV and the profitability index of these two plans Calculate the payback for both plans. (Round your answers to one decimal place, XX) Payback Plan A The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,450,000. Expected annual net cash inflows are $1,500,000 for 10 years, with zero residual value at the end of 10 years. Under Plan B, Lajos Company would open three larger shops at a cost of $8,240,000. This plan is expected to generate net cash inflows of $1,090,000 per year for 10 years, the estimated useful life of the properties. Estimated residual value for Plan B is $980,000. Lajos Company uses straight-line depreciation and requires an annual return of 7%. Plan Calculate the ARR (ccounting rate of return) for both plans. Round your answers to the nearest tenth percent, XX%.) ARR Pana Plan B Cachitate the NPV in present value of each plan. Begin by calculating the NPV of Pan A. (Complete all answer boxes. Entera "O for any zero balance of amounts that do not apply to the stan Enter any factor amounts to the places, XXOOX Use parentheses of mission for a negative nel present value) Plan A Net Cash Annuity PV Factor PV Factor Present Choose from any list or enter any number in the input fields and then continue to the next question Caciulate the NPV (net present value) of each plan. Begin by calculating the NPV of Plan A. (Complete all answer boxes. Enter a" places, X.XXX. Use parentheses or a minus sign for a negative net present value.) Net Cash Inflow Annuity PV Factor (i=9%, n=10) PV Factor (i=9%, n=10) Prese Present Value Plan A: Years 1 - 10 10 Present value of annuity Present value of residual value Total PV of cash inflows Initial Investment Net present value of Plan A Present Plan B: Years 1-10 Net Cash Inflow Annuity PV Factor (i=9%, n=10) D (i=9%, n=10) Value 10 Present value of annuity Present value of residual value Total PV of cash inflows Initial Investment 0 Net present value of Plan B Calculate the profitability index of these two plans. (Round to two decimal places El 11 11 Plan A Plan B Calculate the profitability index of these two plans. (Round to two decimal places X.XX.) Profitability index Plan A Plan B Requirement 2. What are the strengths and weaknesses of these capital budgeting methods? Match the term with the strengths and weaknesses listed for each of the four capital budgeting models. Capital Budgeting Method Strengths/Weaknesses of Capital Budgeting Method 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 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. It allows us to compare alternative investments in present value terms and it also
