Lolas Company operates a chain of sandwich shops.

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.

below are response choice options

Present Value of Ordinarv Annulity of \$1 Future Value of Ordnary Annuity of $1 Calculate the profitability index of these two plans. (Round to two decimal places X.XX.) PlanAPlanB1]=Profitabilityindex== 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. 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 NPV of Plan B. (Complete all answer boxes. Enter a "0" for any zero balances or amounts that do not apply to the plan. Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) 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 accounts for differences in the investments' initial cost. It has none of the weaknesses of the other models. Present Value of $1 Requirement 3. Which expansion plan should Lolas Company choose? Why? Lolas Company should invest in because it has a payback period, a ARR, a net present value, and a profitability index. Requirement 4. 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 the company's hurdle rate of 7%. Future Value of $1 \begin{tabular}{c|l|lll} Plan A & longer & higher & higher & higher \\ & & & & \\ Plan B & shorter & lower & lower & lower \end{tabular} 8%9%9%10%10%12%12%14%14%15% does not exceed exceeds 1. Compute the payback, the ARR, the NPV, and the profitability index of these two plans. 2. What are the strengths and weaknesses of these capital budgeting methods? 3. Which expansion plan should Lolas Company choose? Why? 4. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return? The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,550,000. Expected annual net cash inflows are $1,600,000 for 10 years, with zero residual value at the end of 10 years. Under Plan B, Lolas Company would open three larger shops at a cost of $8,300,000. This plan is expected to generate net cash inflows of $1,020,000 per year for 10 years, the estimated useful life of the properties. Estimated residual value for Plan B is $980,000. Lolas Company uses straight-line depreciation and requires an annual return of 7%. Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the nearest tenth percent, X.X\%.) PlanAPlanB]1===ARR%% Caclulate the NPV (net present value) of each plan. Begin by calculating the NPV of Plan A. (Complete all answer boxes. Enter a "0" for any zero balances or amounts that do not apply to the plan. Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) ARR Net present value Payback method Profitability index Average amount invested Average annual operating income Initial investment Present value of net cash inflows Requirement 1. Compute the payback, the ARR, the NPV, and the profitability index of these two plans. Amount invested Average amount invested Average annual operating income Present value of net cash inflows