Lajos operates a chain of sandwich shops. The company is considering two possible expansion plans. Plan A would open eight shops at a cost of $8,450,000. Expected annual net cash inflows are $1,550,000, with zero residual value at the end of 10 years. Under Plan B, Lajos would open three larger shops at a cost of $8,240,000. This plan is expected to generate net cash inflows of $1,080,000 per year for 10 years, the estimated useful life of the properties. Estimated residual value for Plan B is $990,000. Lajos uses straight-line depreciation and requires an annual return of 7 percentage. (Click the icon to view the Present Value of $1 table.) (Click the icon to view the Future Value of Annuity of $1 table.) (Click the icon to view the Future Value of $1 table). (Click the icon to view the Future Value of Annuity of $1 table.) Requirements Compute the payback, the ARR, the NPV, and the probability index of these two plans. What are the strengths and weaknesses of these capital budgeting methods? Which expansion plan should Lajos choose? Why? Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return? 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, X.X.) Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the neares tenth percent, X.X%) Lajos operates a chain of sandwich shops. The company is considering two possible expansion plans. Plan A would open eight shops at a cost of $8,450,000. Expected annual net cash inflows are $1,550,000, with zero residual value at the end of 10 years. Under Plan B, Lajos would open three larger shops at a cost of $8,240,000. This plan is expected to generate net cash inflows of $1,080,000 per year for 10 years, the estimated useful life of the properties. Estimated residual value for Plan B is $990,000. Lajos uses straight-line depreciation and requires an annual return of 7 percentage. (Click the icon to view the Present Value of $1 table.) (Click the icon to view the Future Value of Annuity of $1 table.) (Click the icon to view the Future Value of $1 table). (Click the icon to view the Future Value of Annuity of $1 table.) Requirements Compute the payback, the ARR, the NPV, and the probability index of these two plans. What are the strengths and weaknesses of these capital budgeting methods? Which expansion plan should Lajos choose? Why? Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return? 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, X.X.) Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the neares tenth percent, X.X%)
