Lukes Company operates a chain of sandwich shops. (Click the icon to view additional information.) Read the requirements 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 Lukes Company choose? Why? 4. 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 PrintDone Calculate the payback for both plans. (Round your answers to one decimal place, X.X.) Plan AS Plan B S Calculate the ARR (accounting rate of return) for both plans (Round your answers to the nearest tenth percent. X X% ) Amount invested 8,450,000 8,000,000 Expected annual net cash inflow 1,525,000 1,070,000 5.5 years More Info 7.5 years 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 1,525,000 for 10 years, with zero residual value at the end of 10 years. Under Plan B, Lukes Company would open three larger shops at a cost of $8,000,000 This plan is expected to generate net cash inflows of $1,070,000 per year for 10 years, the estimated useful life of the properties. Estimated residual value for Plan B is 5990,000. Lukes Company uses straight-line depreciation and requires an annual return of 10% Average annual operating income 680,000 369,000 Average amount invested 4,225,000 4.495,000 ARR 16.1 % 82% Plan A Plan B S Caclulate the NPV (net present value) of each plan. Begin by calculating the NPV of Plan A. (Complete all answer boxes. Enterye amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) Plan A: Net Cash Inflow Annuity PV Factor (i-10%, n-10) PV Factor Years 1-10 10 (i-10%, n-10) Value Print Done Present value of annuity Present value of residual value Total PV of cash inflows 0 nitial Investment Net present value of Plan A