Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

'Please help I'm so confused: Scribbles Inc. operates a chain of coffee shops. The company is considering two possible expansion plans. Plan A would open

'Please help I'm so confused:

image text in transcribedimage text in transcribed

image text in transcribed

image text in transcribed

image text in transcribedimage text in transcribed

Scribbles Inc. operates a chain of coffee shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,440,000. Expected annual net cash inflows are $1,400,000 with zero residual value at the end of ten years. Under Plan B, Scribbles would open three larger shops at a cost of S8,340,000. This plan is expected to generate net cash inflows of $1,200,000 per year for ten years, the estimated life of the properties. Estimated residual value is $1,075,000. Scribbles uses straight-line depreciation and requires an annual return of 8%. (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 recuirements. 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 Plan B Now compute the ARR (accounting rate of return) for both plans. (Round the percentages to the nearest tenth percent.) Plan A Plan B-]% 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 years years Scribbles Inc. operates a chain of coffee shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,440,000. Expected annual net cash inflows are $1,400,000 with zero residual value at the end of ten years. Under Plan B, Scribbles would open three larger shops at a cost of S8,340,000. This plan is expected to generate net cash inflows of $1,200,000 per year for ten years, the estimated life of the properties. Estimated residual value is $1,075,000. Scribbles uses straight-line depreciation and requires an annual return of 8%. (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 recuirements. 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 Plan B Now compute the ARR (accounting rate of return) for both plans. (Round the percentages to the nearest tenth percent.) Plan A Plan B-]% 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 years years

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Lease Audits The Essential Guide

Authors: Theodore H Hellmuth

1st Edition

0934055041, 978-0934055048

More Books

Students also viewed these Accounting questions