Lulus Company operates a chain of sandwich shops. Requirement 1. Compute the payback, the a RR, the NPV, and the probability index of these two plans. Calculate the NVP of each plan. Begin by calculating the NVP of Plan A. calculate the NPV of Plan B. Calculate the probability index of these two plans. 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 3. Which expansion plans for Lulus company choose? Why? Requirement 4. Estimate plan is IRR. How does the IRR compare with the companies 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, XX.) Payback years Plan A years Plan B Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the nearest tenth percent, XX%.) ARR % Plan A % Plan B The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,600,000. 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, Lulus Company would open three larger shops at a cost of $8,240,000. This plan is expected to generate net cash inflows of $1,000,000 per year for 10 years, the estimated useful life of the properties. Estimated residual value for Plan B is $1,300,000. Lulus Company uses straight-line depreciation and requires an annual return of 8%. Caciulate the NPV (net present value) of each plan. Begin by calculating the NPV of Plan A. (Complete all answer boxes. En X.XXX. Use parentheses or a minus sign for a negative net present value.) Plan A: Net Cash Annuity PV Factor PV Factor Present Years Inflow (i=8%, n=10) (i=8%, n=10) Value 1 - 10 Present value of annuity 10 Present value of residual value Total PV of cash inflows 0 Initial Investment Net present value of Plan A Calculate the NPV of Plan B. (Complete all answer boxes. Enter a "0" for any zero balances or amounts that do not apply to value.) Plan B : Net Cash Annuity PV Factor PV Factor Present Years Inflow (i=8%, n=10) Value (i=8%, n=10) 1 - 10 Present value of annuity 10 Present value of residual value Total PV of cash inflows 0 Initial Investment Net present value of Plan B Calculate the profitability index of these two plans. (Round to two decimal places XXX) 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 uned to assess profitability, and takes into account the time value of money. It has none of the weaknesses of the other models | 1s 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 Requirement 3. Which expansion plan should Lulus Company choose? Why? Lulus Company should invest in because it has a payback period, a ARRO net present value, and a profitability Index Requirement 4. Estimate Plan A's IRR How does the IRR comoare with the company's required rate of return? Choose from any list or enter any number in the input fields and then continue to the next question. ARR, a net present value, and a protability index. Requirement 3. Which expansion plan should Lulus Company choose? Why? Lulus Company should invest in because it has a payback perioda Requirement 4. Estimate Plan As IRR How does the IRR compare with the company's required rate of retur? The IRR (numarate of retum) of Plan A is between This rate the company's hurdle rate of 8% - Reference hops ..) 51 table Present Value of $1 1 table.) aknes ses lic Weaki cash value nderst Titigi Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 15% 16% 18% 20% Period 1 0.990 0,980 0971 0.962 0.952 0943 0.935 0.926 0.9170.909 0.89308770870 0.86208470.833 Period 2 0.980 0.961 0.943 0.925 0907 0 8900873 0857 0.8420826 0.797 0.7690 756 0.743 07180 694 Period 3 0.971 0.942 0.915 088908840 840 0.816 0.794 0.772 0.751 0.71206750658 06410 6090579 Period 4 0961 0.924 0.8880855 0.823 07920763 0.735 070806830636 0.592 0.572 0.55205160482 Period 5 0951 0906 0.863 0.822 0.784 0.7470.713 0.681 0.650 0.621 0 5670519 0497 0.4760437 0.402 Period 6 0.942 08880837 0.790 0.746 0.7050 666 0 630 0,596 0.56405070456 0432 0410 0.3700335 Period 7 0933 0.871 0 813 0.760 0.711 0.665 0.623 05830.547 0.513 04520.400 0376 0354 0314 0279 Period B 0.923 0853 0.789 0731 06770627 0 5820540 0.502 0.46704040.351 0.327 0.305 0 266 0233 Period 9 09140837 0.766 0.703 0 645 0 592 0.544 0.500 0.460 0424 0.361 0.308 0.2840263 02250 194 Period 10 0.905 08200744 0.676 0614 0.558 0.5080463 0.422 0386 0.322 0.270 0247 0227 0.191 0.162 Period 11 0896 0.80407220.650 0.585 0527 0.475 0.429 0388 03500 287 02370215 0.1950.162 0.135 Period 12 0887 0788 0.701 0.625 0.557 0.4970444 0.397 0.356 0.319 0257 0208 0.187 0.1680137 0.112 Period 13 0.879 0.773 0.681 0.601 0.530 0469 0415 0.3680326 0.290 0 229 0.182 0.163 0.145 0.116 0093 Period 14 0 870 0.758 0661 0.577 0.505 04420388 0340 0.299 0.263 0.205 0.1600.1410 125 0099 0.078 Period 15 0861 0.743 0.6420555 0.4810417 0.362 0315 0.2750 239 0.1830 140 0.123 0.108 0.084 0.065 Period 16 0.853 0.728 0.623 0534 0.458 0.3940339 0.292 0.252 0218 0.163 0123 0.107 0.093 0.071 0.054 Period 17 0.844 0.714 0.605 0513 0.436 0371 0317 0 270 0231 0.19 0.146 0.1080093 0.080 0.0600045 Period 18 0836 0.7000 58704940416 0 350 0.296 0.250 0212 0 1800 1300095 0.081 0.069 0.051 0.038 Period 19 0.328 068605700475 0.396 0.331 02770232 0.1940 1640 116 0.08300700060 0.043 0.031 Period 20 0.820 0.673 05540.456 0377 0.3120 258 0215 0.178 0.149 0.10400730.061 0051 0.037 0.026 Period 21 10811 0.660 0.538 0.4390359 0 294 0242 0.1990.1640.135 0.093 0064 0.053 0044 0.0310022 Period 22 0803064705220422034202780226 0.184 0.150 0.123 0.083 0.0560046 0.038 0.026 0018 Period 23 0 795 06340.5070 4060326 0.262 0211 0.170 0.138 0.112 0.074 0.049 0.040 0.033 0022 0.015 Period 24 0788 0622 0.492 0.3900 3100 2470 197 0 158 0.1260 1020.066 0.043 0.035 0.0280019 0.013 Period 25 0.780 0 610 04780375 0.2950 233 0.184 0.146 0.116 0.092 0 059 0038 0030 0024 0.0160010 Period 26 0772 0.598 0464 0.361 0281 0220 0.172 0.135 0.106 0.0840053 0.033 0.0260 021 0.014 0.009 Period 27 0784 0586 0.450034702680 2070 161 0.125 0.098 0.076 0.047 0.029 0.023 0.0180011 0007 Period 28 0.757 0.5740437 0.333 0 255 0.1960.150 0.116 0090 0.069 0.042 0026 0.0200.0160010 0.008 Period 29 0.7490563 042403210 2430 185 0.141 0.107 0.082 0.063 0037 0.022 0.017 0.014 0.008 0.005 d to ai to con ar diffed 5 of the Lulus Buse it does the etween AA A AM urdle ral Print Done the in 5% 16% Present Value of Ordinary Annuity of S1 Periods 1% 2% 3% 4% 6% 7% 8% 9% 10% 12% 14% 15% 18% 20% Period 1 0.990 0.980 0971 0.962 0.952 0.943 0.935 0.926 0917 0.909 0.893 0.87708700862 0.847 0.833 Period 2 1970 1.942 1913 1 886 1.859 1.833 1808 1783 1759 1736 1.6901.647 1.626160515661528 Period 3 2.94128842829 2775 2723 2.673 2624 25772531 2.487 240223222283 2246 2174 2.106 Period 4 3.902 3.808 3.717 3.630 3.546 3.465 3.387 3.3123 240 3.170303729142855 2798 2.690 2.589 Period 5 4.853 4713 4.580 4452 4.3294212 4.100 3.993 3890 3.791 3.605 3.433 3.352 3.274 3.127 2.991 Period 6 5.7955601 5.417 5242 5.076 4 917 4.767 4.623 4.4864.355 4.11138893.784 3.685 3.498 3.326 Period 7 6.728 6.472 6230 6.002 5786 5582 5.389 5.206 50334 86845644288 4.1604.039 3.812 3.605 Period 8 7.65273257020 6.733 6.463 6210 59715.747 5535 5335 4.968 46394 487 4 344 4.078 3837 Period 9 8,566 8.16277867.435 7 108 6.802 6.515 6 247 5.995 5759 53284946477246074 303 4.031 Period 10 9.471 8.9838530 8.111 772273607024 6710 6.418 6145 5650 5 216 5.019 4833 4.494 4.192 Period 11 10.368 9787 9 253 8.760 8.306 7887 7.499 7 139 6805 6.495 5938 5453 5 234 5029 4 656 4.327 Period 12 11.255 10.575 9.954 9385 8.863 8.384 7.943 7536 7 1616.814 6.194 5660 5.421 5197 4793 4439 Period 13 12.134 11.348 10.635 9.986 9.394 8.853 8.358 7.904 74877 103 6.424 5.8425.5835342 49104533 Period 14 13.004 12.106 11 296 10.563 9899 9 295 8.745 8.244 7786 7367 6628 6.0025.724 5 468 5008 4611 Period 15 13.865 12.849 11.938 11.118 10.3809712 9.108 8.559 8.061 7.606 6.811 6 142 58475575 5.092 4.675 Period 16 14.718 13.578 12.561 11652 10 838 10.106 9.447 8851 8.313 7 824 6974 6.265 5954 5.669 5162 4730 Period 17 15562 14 292 13.166 12.166 11.274 10.477 9.763 9.122 8.544 8022 7120 6.373 6.047 5.749 5222 4775 Period 18 16 398 14992 13.754 12.659 11.690 10 828 10.0599.372 8.756 8.2017.250 6.467 | 6.128 5.818 5.273 4.812 Period 19 17 226 15678 14 324 13.134 12085 11.158 10.336 9.604 8950 83657366 6.550 6.198 5.877 5.316 4 844 Period 20 18.046 16.351 14.877 13.590 12 462 11.470 10.594 9818 9.129 85147469 6.623 6 259 5.929 5.353 4.870 Period 21 18 857 17 01115,415 14.029 12 821 11.764 10836 10.017 9 292 86497562 6.687 6312 5.973 5384 4.891 Period 22 19.660 17 658 15.93714451 13.163 12 042 11.061 10.2019.442 87727645 6.7436.359 6.0115.410 4.909 Period 23 20.456 18 292 16.444 14.857 13.48912 303 11 272 10.371 95808 8837718 6.79263996044 5432 4.925 Period 24 21.243 18.914 16.93615247 13 799 12.550 11.469 10.529 9707 8.98577846.83564346.073 5.451 4937 Period 25 22 023 19.5231741315.622 14 09412783 11 654 10.675 9.8239.07778436.87364646.097 5.467 4.948 Period 26 22.795 20.121 17 877 15 983 14.375 13.003 11.826 10 8109.929 9.1617.896 6.906 6.491 6.118 5.480 4956 Period 27 23 56020707 18.327 16 330 14 64313 211 11.987 10.935 10.027 9.2377943 6.935 6.514 6.136 5.492 4.964 Period 28 24 316 2128118.764 16.663 14898|13.406 12. 137 11 05110 116 9.3077.984 6.9616534 6 1525.5024970 Period 29 25.06621844 19 188 16 984 15.141 13.591 12 278 11.158 10.1989 370 8.022 6,983 6551 6.166 5510 4.975 In lo La conello LA AN DEE Ann EN Print Done Future Value of $1 1% 9% 10% 14% se al cho Periods Period 1 Period 2 Period 3 Period 4 Period 5 Sapl be u It ha Period 6 Period 7 Period 8 Period 9 Period 10 ed zabili abill ati Period 11 Period 12 Period 13 Period 14 Period 15 ein 2% 3% 4% 5% 6% 7% 8% 12% 15% 1,010 1.020 1030 1040 1.050 1.060 1070 1080 1.090 1.100 1.120 1.140 1.150 1.020 1.040 1061 1.0821 103 1.124 1145 1166 118812101254 1.300 1.323 1.030 1.061 1.093 1.125 1.1581.191 1.225 1260 1.295 1331 1.405 1.482 1.521 1041 1,082 1.126 1.170 1.216 1.262 1.311 1.360 1.412 1484 1.574 1689 1.749 1.051 1. 104 1159121712761338 1.403 1.469 1.539 1.611 1762 1925 2011 1 062 1.126 1.194 1265 1.340 1.419 1.501 1.587 1.677 1.772 1.974 2195 2 313 1.072 1.149 1230 1316 1.407 1.5041.606 1.7141.828 1.949 2211 2 502 2660 1,083 1.1721.267 1369 1.47715941718 1.851 1993 2.144 2.476 28533059 1.094 1.195 1305 1.423 1.551 1689 1.838 1.999 2.172 2.358 27733.2523.518 1.105 | 1.219 1.3441480 1.629 1.791 1.967 2.159 23672.594 3.106 3.707 4.046 1.116 1243 1.3841539 1.7101.898 2 105 2.332 2 580 2853 3.479 42264.652 1.1271.268 1.426 1.601 1.796 2.012 2 252 2518 2.813 3.138 3.896 4.818 5.350 1.1381.2941.469 1.665 1.886 2.133 2410 2720 3.066 3.452 4.363 5.492 6.153 1.149 1.319 1.513 1732 1.980 2.261 2.579 2 937 3.342 3.798 4 887 6 2617,076 1.161 1.346 1.558 1.801 2079 2 397275931723.642 | 4 1775.47471388.137 1.173 1.373 1.605 1.873 2.183 2540 2.952 3.426 3.9704595 6.130 8.1379.358 1.184 1.400 1.653 1.948229226933.1593700 43285.0546 866 9.276 10.76 1.196 1.428 1.7022026 2407 28543.380 3996 4717 55607 690 10.58 12.38 1 208 1.457 1.7542 107 2.527 3.02636174316 5. 1426.116 8.613 1206 14.23 1.220 1.486 1.806 2.1912 653 3.2073.870 4661 5.604 6.727 9.646 13.74 16:37 1.232 1516 1.860 2 279 2.786 3.400 41415.034 6.1097400 10.80 15.67 18.82 1245 1.546 1.916 2.3702 925 3.604 4.43054376.659 8.140 12.10 17 86 21.64 1.257 1.577 1974246530723.820 4.741 5.871 | 72588954 1355 2036 24.89 1.270 1608 2033 2.563 3.225 4.049 5072 6.341 79119.850 15.18 23 21 28.63 1282 1.641 2.094 2.666 3.386 4.292 5.427 6.848 8.623 10.83 1700 26.46 32 92 1.295 1673 2.157 2.772 3 556 4549 5.80773969.399 11.92 19.04 30.1737 86 1.308 1.707 2 221 2.883 3.733 4.822 6.2147.988 10 25 13.11 21.32 34 39 43.54 1321 1.741 2 288 2999 3.920 5.1126,649 8.627 11.17 144223 88 39 2050.07 1.335 1776 2357 3.119 4.116 5.418 7.114 9.317 12 17 15.86 26.75 44.69 57 58 els chod Period 16 Period 17 Period 18 Period 19 Period 20 Darel 1 Period 21 Period 22 Period 23 Period 24 Period 25 Period 26 Period 27 Period 28 Period 29 and Anne ATE cane ACT 0.02 ET LAR 4.00 Print MARA Future Value of Ordinary Annuity of $1 Periods Period 1 Period 2 Period 3 Period 4 Period 5 Period 6 Period 7 Period 8 Period 9 Period 10 Period 11 Period 12 Period 13 Period 14 Period 15 Period 16 Period 17 Period 18 Period 19 Period 20 Period 21 Period 22 Period 23 Period 24 Period 25 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 15% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2010 2020 2030 2040 2050 2060 2070 2080 2090 2100 2.1202140 2.150 3.0303.060 3.091 3.122 3.153 3.1843.215 3.246 3278 3.310 3.3743.440 3.473 4.060 4122 4.184 4.2464.310 4.375 4.440 4.506 4.573 4.641 4779 4.921 4.993 5.101 5.204 5.309 5.416 5.5265.6375.7515.8675.985 6.105 6,353 6.610 6.742 6.152 6 308 6.468 6.633 6.8026.9757 153 7336 7523 77168.115 8.536 8.754 7214 7.4347.6627.898 8.142 8.394 8 654 8.923 9.200 9.487 10.09 10.73 1107 8.286 8.5838.8929.214 9.549 9.897 10.260 10.64 11.03 11.44 12 30 13.23 13.73 9.369 9.755 10.16 10.58 11.03 11.49 11.98 12.49 13.02 13.58 14.78 16.09 16.79 10.46 10.95 1146 1201 1258 13 18 13.82 14.49 15.1915.94 17.55 19.34 20.30 11.57 12.17 12.8113.49 14 21 14.97 15.78 16.65 1756 1853 20.65 23.04 24.35 12.68 13.41 14.19 15.03 15.92 16.87 17.89 18.98 20.14 21.38 24 13 27 27 29.00 13.81 14.68 15.62 16.63 17.71 18.88 20 14 21.50 22.95 24.52 28.03 32.09 34.35 14.95 15.97 17 09 18 29 19.60 21.02 22.55 24.21 26.02 27.98 32.39 37.58 40.50 16.10 17.29 18.60 20.02 21.58 23.28 25.13 27.15 29.36 31.77 3728 43.84 47.58 1726 18.64 20.16 21.82 2366 25.67 27 89 30.32 33.00 35.95 42.75 50.98 55.72 18.43 20.01 21.76 23.70 25.84 28 21 30.84 33.75 36.97 40.54 48.88 59.12 65.08 19.61 21.41 23.41 2565 28 13 30.9134.00 37.45 41.30 45 60 55.75 68.39 75.84 20.81 22.84 25.122767 30.54 3376 37 38 41.45 46.02 51.16 63 44 78.97 88 21 22.02 24.30 26.87 29.78 33 07 36.79 41.00 45.76 51.1657 28 72.05 91.02 1024 23.24 25.78 28.68 31.97 35.72 39.99 44.87 50.42 56.76 64.00 81.70 104.8 118.8 24.47 27 30 30.543425 38.51 43.39 49.01 55.46 6287 71.40 92 50 1204 137.6 25.72 2885 32.45 36.62 41.4347 00 53.44 60.89 69.53 79.54 1046 138,3 1593 26.97 30.42 34.43 39.08 44.50 50.82 58.18 66 76 76.7988,50 1182 158.71842 28 24 3203 36 46 41 65 47.73 54 86 63.25 73.11 84.70 98,35 1333 181.9 2128 29.53 33.6738 55 44 31 51.11 59.16 68.68 79.95 93.32 109.2 150 3 2083 245.7 3082 35 34 40.71 47 08 54.67 63.71 74.48 87 35 102.7 121.1 169.4 238 5 283.6 32.13 37.05 42.93 49.97 58.40 68.5380.70 95,34 113.0 134.2 190.7 2729 3271 33.45 38.79 45 22 52 97 62 32 73.64 87 35 1040 124 1 148.6 214,6 312.13772 Period 26 Period 27 Period 28 Period 29