My Bean Inc. operates a chain of snack shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,840,000. Expected annual net cash inflows are $1,650,000 with zero residual value at the end of ten years. Under Plan B, My Bean would open three larger shops at a cost of $8.440,000. This plan is expected to generate net cash inflows of $1,250,000 per year for ten years, the estimated life of the properties. Estimated residual value is $1,125,000. My Bean uses straight-line depreciation and requires an annual return of 6%. (Click the icon to view the present value annuity factor table.) (Click the icon to view the present value factor table.) (Click the icon to view the future value annuity factor table.) (Click the icon to view the future value factor table.) Read the requirements Requirement 1. Compute the payback period, the ARR, and the NPV of these two plans. What are the strengths and weaknesses of these capital budgeting models? Begin by computing the payback period for both plans. (Round your answers to one decimal place) Plan A (in years) Plan B (in years) Now compute the ARR (accounting rate of return) for both plans (Round the percentages to the nearest tenth percent) Plan A % Plan B % Choose from any list or enter any number in the input fields and then continue to the next question My Bean Inc, operates a chain of snack shops. The company is considering two possible expansion plans Plan A would open eight smaller shops at a cost of $8,840,000. Expected annual net cash inflows are $1,650,000 with zero residual value at the end of ten years. Under Plan B, My Bean would open three larger shops at a cost of $8,440,000. This plan is expected to generate net cash inflows of $1,250,000 per year for ten years, the estimated life of the properties. Estimated residual value is 51,125,000 My Bean uses straight-line depreciation and requires an annual return of 6%. (Click the icon to view the present value annuity factor table.) (Click the icon to view the present value factor table) (Click the icon to view the future value annuity factor table.) (Click the icon to view the future value factor table.) Read the requirements Next compute the NPV (net present value) under each plan Begin with Plan A then compute Plan B. (Round your answers to the nearest whole dollar and use parentheses or a minus sign to represent a negative NPV). Net present value of Plan A Net present value of Plan B Match the term with the strengths and weaknesses listed for each of the three capital budgeting models Capital budgeting models Strengths and weaknesses 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 two models. Is easy to understand, is based on cash flows, and highlights risks. However, it ignores profitability and the time value of money. Choose from any list or enter any number in the input fields and then continue to the next question Requirement 2. Which expansion plan should My Bean choose? Why? Recommendation, Invest in It has the net present value. It also has a payback period Requirement 3. 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 6% Requirement 2. Which expansion plan should My Bean choose? Why? Recommendation: Invest in It has the net present value. It also has a payback period eturn? Requirement 3. Estimate Plan A's IRR. How does the IRR compare with the company's longer The IRR (internal rate of return) of Plan A is between shorter This rate the company's hurdle rate of 6% Choose from any list or enter any number in the input fields and then continue to the next question Requirement 2. Which expansion plan should My Bean choose? Why? Recommendation: Invest in It has the net present value. It also has a payback period Requirement 3. 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 rat 10% and 12% 14% and 16% Choose from any list or enter any number in the in tinue to the next question 12% and 14% icon Value factor table.) lue factor table.) - - icon i Requirements tabili to as 1. Compute the payback period, the ARR, and the NPV of these two plans. What are the strengths and weaknesses of these capital budgeting models? 2. Which expansion plan should My Bean choose? Why? 3. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return? 2. W tion: 3. ES Print Done nale the company's hurdle rate of 6% Perods 1% 2% 4% 5% 6% 8% 10% 12% 14% 15% 18% 20% Period 1 0.990 0.980 0.971 0.962 0.9520.943 0.926 0.9090.893 0.877 0.862 0.847 0.833 Period 2 1.970 1.942 1913 1886 1.859 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 Period 3 2.941 2.884 2 8292.775 2.723 2.673 2577 2487 2.402 2.322 2.246 2174 2.106 Period 4 3.902 3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2798 2.690 2589 Period 5 4.853 4.713 4.5804452 4.3294212 3.9933.791 3.605 3.433 3.274 3.127 2991 Period 6 5.795 5.601 5.417 5.242 5.076 4.917 46234355 4.111 3.889 3.685 3.498 3.326 Period 7 6.728 6.472 | 6.230 6.002 5.786 5.582 5.206 4.8684564 4.288 4.039 3.812 3.605 Period 8 7.652 7,325 7020 6.733 6.463 6.210 5.747 6.335 4.968 4.639 4344 4078 3.837 Period 9 8.566 8.1627.786 7435 7.108 6.802 6.247 6.759 5.328 4.943 4.607 4.303 4.031 Period 10 9.471 8.983 8.530 8.111 7.722 7360 | 6.710 6.145 5.650 | 5.216 4833 4.494 4.192 Period 11 10 368 9.787 9253 8.760 8.306 7.887 7.139 6.495 5.938 5.453 5029 4.656 4.327 Period 12 11 255 10.575 9.954 9.3858.8638.384 7.536 6.814 6 194 5.660 5197 4.793 4.439 Period 13 12.134 11 348 10.636 9.988 9.394 8.8537.9047103 6.4246.8425342 4.910 4.533 Period 14 13.004 12.106 11 296 10.563 9.899 9.295 8.244 7.3676.6286.0025.468 5.008 4.611 Period 15 13.865 12 849 11.93811.118 10.380 9.7128.559 7.606 6.811 6.142 5.575 5.092 4675 Period 20 18.046 16.361 14.877 13.6901246211470 9.818 8.614 74696.823 5 929 5.3534870 6.467 4948 Period 25 22.023 19.52317418 16.622 14.09412.783 10.675 9.07778436.873 6097 Period 30 25 808 2239619.600 17.292 15.372 13.765 11 25894278.055 70038.1776.517 4.979 Period 40 32 836 27.355 23.116 19.793 17.15915048 11.9269.7798244 7.105 6.233 5.548 4997 Print Done i Reference 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 2% 3% 4% 5% 5% 8% 10% 12% 14% 16% 18% 20% 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 2.080 2100 2.120 2140 2160 2.180 2.200 3.030 3.050 3.091 3.122 3.153 3.184 3.246 3.310 3.374 3.440 3.506 3.572 3.640 4.050 4.122 4.184 4246 4.310 4.375 4.506 4.641 4.779 4921 5.066 5.215 5.368 5.101 5.204 5.309 5.416 5.526 5.637 5867 6.105 6.353 6.610 6.877 7.154 7.442 6.152 6.308 6468 6.633 6.802 6.975 7.336 7.716 8. 115 8.536 8.977 9.442 9.930 7214 7.434 7.662 7.898 8.142 8.394 8.923 9.487 10.089 10.730 11.414 12.142 12.916 8.286 8.683 8.892 9214 9.549 9,897 10 637 11436 12.300 13.233 14.240 15.327 16.499 9.369 9.756 10.159 10.583 11.027 11.491 12488 13.579 14.776 16.085 17.519 19.086 20.799 10.462 10.9501148412.006 12.578 13.181 14 48715.937 17.549 19.337 21.321 23.521 25.959 11.567 12.169 12 808 13.486 14.207 14.972 16.645 18.531 20.655 23.045 25.733 28.755 32.150 12.683 13.412 14.192 15.026 15.91716870 18.977 21.384 24 133 27 271 30.850 34 931 39.581 13.800 14 68015618 16 627 17.713 18.882 21.49524,523 28.029 32.089 36.788 42.219 48.497 14.94715.97417 088 18 29219.599 | 21.015 24.215 27.975 32 393 37.581 43,672 50.818 59.198 16.097 17 29318.59920.024 2157923.276 27.152 31.772 37.280 43.842 51.860 60.965 72.035 22.019 24 297 26.870 29.778 33,066 36.786 45.762 67 27572052 91 025 115 380 146.628 186 688 28 243 32.030 36.459 41 646 47.72754 865 73.106 98.347 133.334 181.871 249.214 342.603 471981 34.785 40.568 47 675 56 035 66,43979.058 113283 164 494 241.333 356.787 530.312 790 949 1,181.882 48 886 80402 75 40195 026 120 800154.782259.057 442.593 7670911,342 0252 360 757 4.163.2137.343 858 Period 20 Period 25 Period 30 Period 40 Print Done Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 15% 18% 20% Period 1 0.990 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 0.862 0.847 0.833 Period 2 0.980 0.961 0.943 0.925 0.907 0.890 0.857 0.826 0.797 0.769 0.743 0.718 0.694 Period 3 0.971 0.942 0.915 0.889 0864 0.840 0.794 0.751 0.712 0.675 0.641 0.609 0.579 Period 4 0.961 0.924 0.888 0.855 0.823 0.792 0.735 0.683 0.636 0.592 0.552 0.516 0.482 Period 5 0.951 0.906 0.863 0.822 0.784 0.747 0.681 0.621 0.567 0.519 0.476 0.437 0.402 Period 6 0.942 0.888 0.837 0.790 0.746 0.705 0.630 0.564 0.607 0.466 0.410 0.370 0.335 Period 7 0.933 0.871 0.813 0.760 0.711 0.665 0.583 0.513 0.462 0.400 0.354 0.314 0.279 Period 8 0.923 0.853 0.789 0.731 0.677 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0.233 Period 9 0.914 0.837 0.766 0.703 0.6450.592 0.500 0.424 0.361 0.308 0.263 0.225 0.194 Period 10 0.905 0.820 0.744 0.676 0.614 0.5680.463 0.386 0.322 0.270 0.227 0.191 0.162 Period 110.896 0.804 0.722 0.650 0.585 0.527 0.429 0.350 0.287 0237 0.1950.162 0.135 Period 12 0.8870.788 0.701 0.625 0.5570.497 0.397 0.319 0257 02080.1680.137 0.112 Period 13 0.879 0.773 0.681 0.601 0.530 0.469 0.368 0.290 0229 0.182 0.145 0.116 0.093 Period 14 0.870 0.758 0.661 0.577 0.505 0.442 0.340 0.263 0.205 0160 0.125 0.099 0.078 Period 15 0.861 0.743 0.642 0.555 0.4810417 0.315 0.2390.183 0.140 0.108 0.084 0.065 Period 200.820 0.673 0.554 0.456 0.377 0,3120215 0.149 0.104 0.073 0051 0.037 0026 Period 25 0.78006100,478 0.375 0.205 0.2330.146 0.092 0.0590038 0.024 0.016 0010 Period 30 0.742 0.552 0.412 0.308 0231 0,1740.099 0.057 0.038 0020 0012 0.0070004 Period 40 0.672 0.453 0.3070.2000.142 0.097 0.048 0.022 0.011 0.005 0.003 0.001 0.001 Print Done