present value of annuity
present value factor
future value of annuity
future value factor
Happy Bean Inc. operates a chain of doughnut shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,940,000. Expected annual net cash inflows are $1,750,000 with zero residual value at the end of ten years. Under Plan B, Happy Bean would open three larger shops at a cost of $8,440,000. This plan is expected to generate net cash inflows of $1,500,000 per year for ten years, the estimated life of the properties. Estimated residual value is $975,000. Happy 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.) 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. \begin{tabular}{|l|c|c|c|c|c|c|c|c|c|c|c|c|c|} \hline \\ \hline Periods & 1% & 2% & 3% & 4% & 5% & 6% & 8% & 10% & 12% & 14% & 16% & 18% & 20% \\ \hline 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 & 1.970 & 1.942 & 1.913 & 1.886 & 1.859 & 1.833 & 1.783 & 1.736 & 1.690 & 1.647 & 1.605 & 1.566 & 1.528 \\ Period 3 & 2.941 & 2.884 & 2.829 & 2.775 & 2.723 & 2.673 & 2.577 & 2.487 & 2.402 & 2.322 & 2.246 & 2.174 & 2.106 \\ Period 4 & 3.902 & 3.808 & 3.717 & 3.630 & 3.546 & 3.465 & 3.312 & 3.170 & 3.037 & 2.914 & 2.798 & 2.690 & 2.589 \\ Period 5 & 4.853 & 4.713 & 4.580 & 4.452 & 4.329 & 4.212 & 3.993 & 3.791 & 3.605 & 3.433 & 3.274 & 3.127 & 2.991 \\ Period 6 & 5.795 & 5.601 & 5.417 & 5.242 & 5.076 & 4.917 & 4.623 & 4.355 & 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 & 4.868 & 4.564 & 4.288 & 4.039 & 3.812 & 3.605 \\ Period 8 & 7.652 & 7.325 & 7.020 & 6.733 & 6.463 & 6.210 & 5.747 & 5.335 & 4.968 & 4.639 & 4.344 & 4.078 & 3.837 \\ Period 9 & 8.566 & 8.162 & 7.786 & 7.435 & 7.108 & 6.802 & 6.247 & 5.759 & 5.328 & 4.946 & 4.607 & 4.303 & 4.031 \\ Period 10 & 9.471 & 8.983 & 8.530 & 8.111 & 7.722 & 7.360 & 6.710 & 6.145 & 5.650 & 5.216 & 4.833 & 4.494 & 4.192 \\ Period 11 & 10.368 & 9.787 & 9.253 & 8.760 & 8.306 & 7.887 & 7.139 & 6.495 & 5.938 & 5.453 & 5.029 & 4.656 & 4.327 \\ Period 12 & 11.255 & 10.575 & 9.954 & 9.385 & 8.863 & 8.384 & 7.536 & 6.814 & 6.194 & 5.660 & 5.197 & 4.793 & 4.439 \\ Period 13 & 12.134 & 11.348 & 10.635 & 9.986 & 9.394 & 8.853 & 7.904 & 7.103 & 6.424 & 5.842 & 5.342 & 4.910 & 4.533 \\ Period 14 & 13.004 & 12.106 & 11.296 & 10.563 & 9.899 & 9.295 & 8.244 & 7.367 & 6.628 & 6.002 & 5.468 & 5.008 & 4.611 \\ Period 15 & 13.865 & 12.849 & 11.938 & 11.118 & 10.380 & 9.712 & 8.559 & 7.606 & 6.811 & 6.142 & 5.575 & 5.092 & 4.675 \\ Period 20 & 18.046 & 16.351 & 14.877 & 13.590 & 12.462 & 11.470 & 9.818 & 8.514 & 7.469 & 6.623 & 5.929 & 5.353 & 4.870 \\ Period 25 & 22.023 & 19.523 & 17.413 & 15.622 & 14.094 & 12.783 & 10.675 & 9.077 & 7.843 & 6.873 & 6.097 & 5.467 \\ Period 30 & 25.808 & 22.396 & 19.600 & 17.292 & 15.372 & 13.765 & 11.258 & 9.427 & 8.055 & 7.003 & 6.177 & 5.517 \\ Period 40 & 32.835 & 27.355 & 23.115 & 19.793 & 17.159 & 15.046 & 11.925 & 9.779 & 8.244 & 7.105 & 6.233 & 5.548 & 4.997 \\ \hline \end{tabular} \begin{tabular}{|c|c|c|c|c|c|c|c|c|c|c|c|c|c|} \hline \multicolumn{14}{|c|}{ Present Value of \$1 } \\ \hline \begin{tabular}{|l|l|} Periods \\ \end{tabular} & 1% & 2% & 3% & 4% & 5% & 6% & 8% & 10% & 12% & 14% & 16% & 18% & 20% \\ \hline 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 \\ \hline 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 \\ \hline Period 3 & 0.971 & 0.942 & 0.915 & 0.889 & 0.864 & 0.840 & 0.794 & 0.751 & 0.712 & 0.675 & 0.641 & 0.609 & 0.579 \\ \hline 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 \\ \hline 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 \\ \hline Period 6 & 0.942 & 0.888 & 0.837 & 0.790 & 0.746 & 0.705 & 0.630 & 0.564 & 0.507 & 0.456 & 0.410 & 0.370 & 0.335 \\ \hline Period 7 & 0.933 & 0.871 & 0.813 & 0.760 & 0.711 & 0.665 & 0.583 & 0.513 & 0.452 & 0.400 & 0.354 & 0.314 & 0.279 \\ \hline 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 \\ \hline Period 9 & 0.914 & 0.837 & 0.766 & 0.703 & 0.645 & 0.592 & 0.500 & 0.424 & 0.361 & 0.308 & 0.263 & 0.225 & 0.194 \\ \hline Period 10 & 0.905 & 0.820 & 0.744 & 0.676 & 0.614 & 0.558 & 0.463 & 0.386 & 0.322 & 0.270 & 0.227 & 0.191 & 0.162 \\ \hline Period 11 & 0.896 & 0.804 & 0.722 & 0.650 & 0.585 & 0.527 & 0.429 & 0.350 & 0.287 & 0.237 & 0.195 & 62 & 0.135 \\ \hline Period 12 & 0.887 & 0.788 & 0.701 & 0.625 & 0.557 & 0.497 & 0.397 & 0.319 & 0.257 & 0.208 & 0.168 & 0.137 & 0.112 \\ \hline Period 13 & 0.879 & 0.773 & 0.681 & 0.601 & 0.530 & 0.469 & 0.368 & 0.290 & 0.229 & 0.182 & 0.145 & 0.116 & 0.093 \\ \hline Period 14 & 0.870 & 0.758 & 0.661 & 0.577 & 0.505 & 0.442 & 0.340 & 0.263 & 0.205 & 0.160 & 0.125 & 0.099 & 0.078 \\ \hline Period 15 & 0.861 & 0.743 & & 0.555 & 0.481 & 0.417 & 0.315 & 0.239 & 83 & 0.140 & 0.108 & 0.084 & 0.065 \\ \hline Period 20 & 0.820 & 0.673 & 0.554 & 0.456 & 0.377 & 0.312 & 0.215 & 0.149 & 0.104 & 0.073 & 0.051 & 0.037 & 0.026 \\ \hline Period 25 & 0.780 & 0.610 & 0.478 & 0.375 & 0.295 & 0.233 & 0.146 & 0.092 & 0.059 & 0.038 & 0.024 & 0.016 & 0.010 \\ \hline Period 30 & 0.742 & 0.552 & 0.412 & 0.308 & 0.231 & 0.174 & 0.099 & 0.057 & 0.033 & 0.020 & 0.012 & 0.007 & 0.004 \\ \hline Period 40 & 0.672 & 0.453 & 0.307 & 0.208 & 0.142 & 0.097 & 0.046 & 0.022 & 0.011 & 0.005 & 0.003 & 0.001 & 0.001 \\ \hline \end{tabular} neterice Future Value of $1
