Present Value of Ordinary Annuity

i More Info -X The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,550,000. 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 $8,100,000. This plan is expected to generate net cash inflows of $1,050,000 per year for 10 years, the estimated useful life of the properties. Estimated residual value for Plan B is $1,100,000. Lulus Company uses straight-line depreciation and requires an annual return of 10%. Print Done 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, X.X.) = Payback Plan A years Plan B II years Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the nearest tenth percent, X.X%.) ARR Plan A % Plan B % Caciulate the NPV (net present value) of each plan. Begin by calculating the NPV of Plan A. (Complete all answer boxes. Enter negative net present value.) Plan A: Present Net Cash Inflow Annuity PV Factor (i=10%, n=10) PV Factor (i=10%, n=10) Years Value 1 - 10 10 Present value of annuity Present value of residual value Total PV of cash inflows Initial Investment Net present value of Plan A 0 Choose from any list or enter any number in the input fields and then continue to the next question. Save for Later 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 the Plan B: Present Net Cash Inflow Annuity PV Factor (i=10%, n=10) PV Factor (i=10%, n=10) Years Value 1 - 10 10 Present value of annuity Present value of residual value Total PV of cash inflows Initial Investment Net present value of Plan B Calculate the profitability index of these two plans. (Round to two decimal places X.XX.) Profitability index Plan A 11 Plan B 11 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 used to assess profitability, and takes into account Choose from any list or enter any number in the input fields and then continue to the next question. 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 used to assess profitability, and takes into account the time value of money. It has none of the weaknesses of the other models. Is 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 VARR, a net present value, and a profitability index Requirement 4. 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 10% Present Value of $1 Periods 1 2. 1% 2% 3% 4% 0.990 0.980 0.971 0.962 0.980 0.961 0.943 0.925 0.971 0.942 0.915 0.889 0.961 0.924 0.888 0.855 0.951 0.906 0.863 0.822 4 5 6 7 8 9 10 0.942 0.888 0.837 0.790 0.933 0.871 0.813 0.760 0.923 0.853 0.789 0.731 0.914 0.837 0.766 0.703 0.905 0.820 0.744 0.676 0.896 0.804 0.722 0.650 0.887 0.788 0.701 0.625 0.879 0.773 0.681 0.601 0.870 0.758 0.661 0.577 0.861 0.743 0.642 0.555 0.208 11 12 13 14 15 5% 6% 7% 8% 9% 10% 12% 14% 15% 16% 18% 20% 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.870 0.862 0.847 0.833 0.907 0.890 0.873 0.857 0.842 0.826 0.797 0.769 0.756 0.743 0.718 0.694 0.864 0.840 0.816 0.794 0.772 0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.823 0.792 0.763 0.735 0.708 0.683 0.636 0.592 0.572 0.552 0.516 0.482 0.784 0.747 0.713 0.681 0.650 0.621 0.567 0.519 0.497 0.476 0.437 0.402 0.746 0.705 0.6660.630 0.596 0.564 0.507 0.456 0.432 0.410 0.370 0.335 0.711 0.665 0.623 0.5830.547 0.513 0.452 0.400 0.376 0.354 0.314 0.279 0.677 0.627 0.582 0.540 0.502 0.467 0.404 0.351 0.327 0.305 0.266 0.233 0.645 0.592 0.544 0.500 0.460 0.424 0.361 0.308 0.284 0.263 0.225 0.194 0.614 0.558 0.508 0.463 0.422 0.386 0.322 0.270 0.247 0.227 0.191 0.162 0.585 0.527 0.475 0.429 0.388 0.350 0.287 0.237 0.215 0.195 0.162 0.135 0.557 0.497 0.444 0.397 0.356 0.319 0.257 0.187 0.168 0.137 0.112 0.530 0.469 0.415 0.368 0.326 0.290 0.229 0.182 0.163 0.145 0.116 0.093 0.505 0.442 0.388 0.340 0.299 0.263 0.205 0.160 0.141 0.125 0.099 0.078 0.481 0.417 0.362 0.315 0.275 0.239 0.183 0.140 0.123 0.108 0.084 0.065 0.458 0.394 0.339 0.292 0.252 0.218 0.163 0.123 0.107 0.093 0.071 0.054 0.436 0.371 0.317 0.270 0.231 0.198 0.146 0.108 0.093 0.080 0.060 0.045 0.416 0.350 0.296 0.250 0.212 0.1800.130 0.095 0.081 0.069 0.051 0.038 0.396 0.331 0.277 0.232 0.194 0.164 0.116 0.083 0.070 0.060 0.043 0.031 0.377 0.312 0.258 0.215 0.178 0.149 0.104 0.073 0.061 0.051 0.037 0.026 0.359 0.294 0.242 0.199 0.164 0.135 0.093 0.064 0.053 0.044 0.031 0.022 0.342 0.278 0.226 0.184 0.150 0.123 0.083 0.056 0.046 0.038 0.026 0.018 0.326 0.262 0.211 0.170 0.138 0.112 0.074 0.049 0.040 0.033 0.022 0.015 0.310 0.247 0.197 0.158 0.126 0.102 0.066 0.043 0.035 0.028 0.019 0.013 0.295 0.233 0.184 0.146 0.116 0.092 0.059 0.038 0.030 0.024 0.0160.010 0.281 0.220 0.172 0.135 0.106 0.084 0.053 0.033 0.026 0.021 0.014 0.009 0.268 0.207 0.161 0.125 0.098 0.076 0.047 0.029 0.023 0.018 0.011 0.007 0.255 0.196 0.150 0.116 0.090 0.069 0.042 0.026 0.020 0.016 0.010 0.006 0.534 16 17 18 19 20 0.853 0.844 0.836 0.828 0.820 0.728 0.623 0.714 0.605 0.700 0.587 0.686 0.570 0.673 0.554 0.513 0.494 0.475 0.456 21 22 23 24 25 0.811 0.660 0.803 0.647 0.795 0.634 0.788 0.622 0.780 0.610 0.538 0.439 0.522 0.422 0.507 0.406 0.492 0.390 0.478 0.375 26 27 28 0.772 0.764 0.757 0.598 0.464 0.586 0.450 0.574 0.437 0.361 0.347 0.333 29 30 0.749 0.742 0.563 0.552 0.424 0412 0.321 0308 0.243 0.231 0.185 0474 0.141 0.131 0.107 0.082 10.099 | 0.075 0.063 0.057 0.008 0.007 0.005 0.004 0.037 0.022 0.017 0.014 0.033 | 0.020 | 0.015 | 0.012 0011 0.005 0.004 0.003 0.003 0.001 0.001 0.001 40 0572 0453 0.307 0.208 0.142 0.097 0.046 0.032 0.022 0.001 0.001 0.067 0.034 50 0.608 0372 0.228 0.141 0.087 0.054 0.021 0.013 0.009 Periods 1% 2% 3% 4% 5% 6% 7% 3% 9% 10% 12% 14% 15% 16% 189 20% 0.990 | 0.980 0971 0962 | 0.952 0543 0.935 0926 0.917 0909 0893 0.877 0870 0.862 | 0.847 0.833 2 1970 1942 1913 1.886 1.859 1333 1.808 1.783 1759 1736 1590 1547 | 1.626 1605 1.566 1528 3 2941 2.884 | 2.829 2775 2723 | 257 | 2624 2577 2.531 2487 2402 2322 | 2283 2.246 2.174 | 2106 4 3.902 |3808 | 3717 3.630 | 3546 | 3465 |3387 | 3312 3.240 3.170 3.037 | 2914 2855 2798 2590 | 2589 5 4.853 | 4.73| 4.580 4452 | 4329 | 4.212 | 4100 13993 3.890 3.791 3605 3433 3.352 3274 3.127 | 2991 5 5.795 | 5.601 5.417 5.242 | 5.076 | 4.917 | 4767 | 4.623 4.486 | 4355 4.111 3889 3.784 3685 3498 3.326 5.728 | 5472 | 6.230 6.002 | 5.786 | 5.582 | 5.389 | 5.206 5.033 4.868 4.564 4.288 4.160 4.38 3812 |3605 8 7.652 | 7.325 | 7.020 6.733 | 6.463 | 6.210 | 5971 | 5.747 5.535 5335 4968 4.639 | 4.487 4.344 4.078 3837 9 8.566 | 8.162 7786 7.435 | 7.108 | 6.802 | 6515 | 6.247 5.995 5759 5328 4.946 | 4772 | 4.507 | 4.303 | 4.031 10 9471 8.983 | 8.530 3.114 7.722 | 7.360 | 7.024 | 6710 6.418 6.145 5550 5.216 | 5.019 4.833 4.494 4.192 11 10.368| 9787 9253 8760 | 3306 | 7.887 7499 | T138 6.805 6495 5938 5453 5.234 5.029 | 4.555 4.327 12 11.255 | 10.575|3954 9385 | 8863 | 3384 7.943 | 535 7.161 6814 6.194 5.560 5421 | 5.17 | 4.793 4.439 13 12.134 | 11.348 | 10.635 | 9986 19394 | 8853 8.358 7904 7.487 7103 6424 5842 5583 5.342 4910 4.533 14 13.004 | 12.105 | 1.295 | 10.563|39899 19295 8.745 8244 7.786 7.367 6.628 6.002 5.724 5.468 5.008 | 4.611 15 13.865 | 12.849 | 1.938 | 118| 10.380 | 9712 | 9.108 3.559 8.061 7.606 6.81 6.142 5847 5575 5.092 4.575 16 14.7 18| 13.578 | 12.561 | 1.652 | 10.838 | 10.106 | 9447 | 8851 8.313 7824 6974 6.265 5954 5669 5.162 | 4.730 17 15.562 | 14.292 | 13.166 | 12.166 | 11.274 | 10.477 | 9763 | 9122 8.544 8.022 7.120 6.378 6.047 5.749 5.222 4.775 18 16.398 | 14.992 | 13.754 | 12.659 | 1.690 | 10.828 | 10.059 | 3372 8.756 3.201 7250 5.467 | 5.128 | 5818 5273 4812 9 17.225 | 15.678 | 14.324 | 13.134 | 12.085 | 11.158 | 10.336 | 9604 8.950 8.365 | 365 6.550 6.198 | 5.877 5316 4.844 20 18.046 | 16.351 | 14.877|3.590 | 12.462 | 11.470 | 10.594 | 9818 9.129 8.514 7469 6.623 6.255 5.925 | 5353 4.870 21 18.857 | 17.011 | 15.45 | 14.029 | 12.821 | 11.764 | 10.836 | 10.017 | 9.292 8.649 7.562 6.687 6312 5.973 5.384 4.891 22 19.560 | 7.558 | 15.37 | 14.451| 13.163 | 12.042 | 11.061| 10.2041| 9442 8772 72545 5.743 6359 6011 5410 4.909 23 20.455 | 18.292 | 16.444 | 14.857 | 13.489 | 12.303|1.272 | 10.371| 9.580 3.883 7718 6.792 6399 5.044 5432 4.925 24 21.243 | 18.944 | 16.336 | 15.247 | 13.79 | 12.550 | 11.469 | 10.529 | 9.707 8.985 7.784 5.835 6434 6.073 5.451 4937 25 22.023 | 19.523 | 17.413 | 15.622 | 14.094 | 12.73 | 1.654 | 10.575 | 9.823 9077 7843 6873 6464 | 6.097 | 5467 4.948 26 22.795 | 20.121 | 1.8T | 15.983 | 14.375 | 13.003 | 11.826 | 10.810 | 9929 9161 7896 6906 6491 6.118 5480 4.956 27 23.560 | 20.707 | 18.327 | 16.330 | 14.543 | 13.21 | 11.987 | 10.935 | 10.027 9237 7943 6935 6514 6.136 5492 4.964 28 24.15|2128118.74 163114.88 13.40G | 12 137 11.51] 106 9307 7.984 561 6534 5152 5502 40 29 30 | 25.066 | 21.844 | 19.188 | 16.984 | 15.141 | 13.591 | 12.278 | 11.158 | 10.198 | 9.370 25.808 | 22.396 | 19.500 | 7.292|15.372] 3.765 | 12409 | 1.258 | 10 274 | 9427 8022 6.983 8.055 | 7.003 6551 6.566 6.166 | 5.510 6.177 5.517 4975 4979 40 8.244 7105 6642 6.233 5.548 4.997 | 32.835 | 27.355 | 23.115 | 19.793 | 17.19 | 15.046| 13.332 | 1925 | 10.757 | 3779 38.16 | 31.424 | 25.730 | 21.482 | 18.256 | 15.762 | 13.801 | 12.23 | 10.962 | 9915 50 3.304 7.13 6661 6246 5554 4.999 Periods | |--------- 2 3 15% 1.150 1.323 1.521 1.749 2014 1262 5 5 3 2.313 2660 3059 3.518 4.046 10 11 12 13 14 15 Future Value of $1 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 1010 1.020 1030 1.040 1.050 1.060 1070 1080 1.090 1100 1120 1140 1.020 1.040 1061 1.082 1103 1124 1.145 1.166 | 1.188 1210 1254 1300 1030 1061 1093 1125 11588 1191 1225 1260 1295 1.331 1.405 1482 1.041 1.082 | L125 1170 1.216 1.31 1.360 1412 1464 1.574 1.589 1051 1104 1.159 1217 1.276 | 1.338 | 1403 | 1.469 1.539 1.611 1.762 1925 1.062 1.126 1.194 1.265 1.340 1419 1501 1.587 | 1.577 1772 1974 2.195 1072 1149 1230 1316 1.407 1.504 1.505 1714 1.828 1949 2.211 2502 1.083 | 1172 | 1267 1.369 1477 1.594 1.78]1851 1993 2144 2476 | 2853 1.094 1.195 1.305 1423 1.551 168 188 1999 2172 2358 2773 3.252 1105 1219 1.344 1.480 1629 | 1791 | 1967 | 2159 2367 2.594 3.106 3707 1.116 1243 1384 1539 170 | 18988 | 2105 | 2332 | 2.580 2.853 3479 | 4.226 1127 1268 1.426 1601 1796 | 2012 | 2.252 | 2518 | 2813 3.138 3896 4.818 1138 1294 1465 1665 1886 | 2133 2410 | 2.720 | 3066 3452 | 4.363 5492 1.149 1319 1513 132 1.980 | 2261| 2579 | 293713342 3798 4.887 6261 1.161 1.346 | 1558 | 1801 | 2.079 2.397 2.759 | 3172 | 3642 | 4.177 | 5474 7.138 1173 1373 1505 1873 | 2.183 | 2.540 2.952 | 3426 | 3.970 4.595 6.130 8.137 1.184 1400 1653 1948 | 2.292 2.693 3.159 3700 4.328 5.054 6866 9276 1.196 1428 1702 | 2.026 | 2407 | 2.854 3380 | 3996 | 4717 5560 7.690 10.58 1.208 1457 1.754 | 2.107 2527 3.025 3617 4.316 5.142 | 6.16 8613 12.06 1220 1486 1806 | 2191 | 2653 3207 3870 4.561 5604 6727 9646 13.74 1232 1.516 1.860 2279 | 2786 3400 4.141 5.034 6.109 7400 | 10.80 15.67 1245 1.546 | 1916 | 2370 2925 3604 4.430 5.437 6.555 8.140 12.10 17.86 1257 1577 1.974 2465 3.072 | 3.820 4.741 5.871 7258 8954 13.55 20.36 1.270 1.508 2033 2.563 3225 4.049 5.072 5341 1911 9850 15.18 23.21 1282 1641 20094 2.666 | 3386 | 4.292 | 5.427 6848 | 8623 | 10.83 | 17.00 | 26.46 1295 1673 2157 2772 3.556 4.549 5.807 7.396 939 11.92 19.04 30.17 1308 1707 2221 2883 3.733 4.822 6214 7988 10.25 13.11 21.32 34.39 1.321 1741 2288 2999 3.920 5.112 6649 3.627 11.17 14.42 23.8 9.20 4.652 5.350 6.153 7.076 8.137 16 17 18 9 20 9.358 10.76 12.38 14.23 16.37 21 27 23 24 25 18.82 21.64 24.88 28.63 3292 37.86 26 27 28 43.54 50.07 44.69 29 30 1335 1.348 1.76 | 2357 1.811 2427 3.119 4.116 5418 7.114 3.243 | 4322 | 5.743 | 7612 9317 10.06 12.17 13.27 15.6 745 26.75 29.96 7.58 66.21 50.95 40 1.489 2208 3262 4.801 7.040 10.29 14.97 21.72 1.41 45.26 3.05 1889 2679 50 1.645 2.692 4.384 7.107 11.47 18.42 29.46 46.90 74.36 1174 289.0 7002 1.084 Periods 1% 2% 3% 1.000 1.000 1.000 2 2010 2020 2.030 3.030 3.060 | 3091 14.060 | 4.122 | 4.184 5 5.101 | 5.204 | 5309 ------- 10% 12. 1.000 1.000 2100 2120 3310 3.374 4.541 4.779 6.105 16.353 14% 1.000 2140 3440 4921 5510 15% 1.000 2.150 3473 4.993 5742 5 7 6. 152 | 6.308 6.468 7214 7434 17662 8.286 8.583 | 8892 9.369 9755 10.16 10.46 10.95 1.46 8 Future Value of Ordinary Annuity of $1 4% 5% 6% 7% 8% % 1.000 1.000 1.000 1.000 1000 1.000 2.040 | 2.050 | 2.060 | 2.070 2080 2.090 3.122 |31683184 3.215 |3245 |3278 4.246 4310 | 4375 4.440 | 4.505 4.573 5416 | 5.526 | 5637 5.15115867 15985 6.633 | 6.802 | 6975 | 7.153 7.336 7.523 7898 | 8.142 | 8394 3654 8923 | 9.200 9.214 | 9.549 | 9.897 | 10.260 10.54 11.03 10.58 11.03 1.49 198 12.49 13.02 12.01 12.58 3.18 13.82 14.49 15.19 1349 14.21 14.97 15.78 16.65 7.56 15.03 15.92 16.87 17 18.98 20.14 16.63 1771 18.88 20.14 21.50 22.95 8.29 19.60 21.02 22.55 24.21 26.02 20.02 | 21.58 23.28 25.13 27 15 29.36 21.82 23.56 | 25.57 27.89 30.32 13.00 23.70 | 25.84 28.21 30.84 3.75 36.97 25.65 | 28.13 | 30.91 34.00 37.45 41.30 27.67 30.54 33.76 37.38 41.45 46.02 29.78 33.07 36.79 41.00 45.76 | 51.16 7716 9487 11.44 13.58 15.94 8.115 10.09 12.30 14.78 7.55 8.754 11.07 13.73 16.79 2030 9 10 3.536 10.73 13.23 16.09 19.34 23.04 27.27 32.09 37.58 43.84 11 12 13 14 15 11.57 12.68 13.81 14.95 16.10 12.17 13.41 14.68 15.97 17.29 12.81 14.19 15.62 17.09 18.60 18.53 21.38 24.52 27.98 31.77 20.65 24.13 28.03 32.38 37.28 24.35 29.00 34.35 40.50 47.58 16 17 18 9 20 1726 18.64 18.43 20.01 19.61 | 21.41 20.81 22.84 22.02 24.30 20.16 21.76 23.41 25.12 26.87 50.98 9.12 8.39 78.97 91.02 55.72 65.08 75.84 88.21 1024 35.95 42.75 40.54 48.88 45.60 55.75 51.16 63.44 57.28 72.05 64.00 31.70 71.40 92.50 79.54 104.6 8.50 1182 98.35 | 1333 21 27 23 24 25 23.24 24.47 25.72 26.97 28.24 25.78 27.30 28.85 30.42 32.03 28.68 30.54 2.45 34.43 36.46 31.97 4.25 36.62 9.08 41.65 35.72 9.99 38.51 43.39 41.43 47.00 44.50 50.82 47.73 | 54.86 44.87 49.01 53.44 58.18 63.25 50.42 55.46 60.89 66.76 73.11 56.76 62.87 9.53 76.79 84.70 104.8 1204 1383 1587 1819 18.8 1376 159.3 1842 212.8 245.7 283.6 327.1 26 27 28 29.53 30.82 32.13 33.67 35.34 37.05 38.55 40.71 42.93 44.31 47.08 49.97 5111 54.67 58.40 59.16 63.71 58.58 68.58 74.48 80.70 79.95 87.35 95.34 3.32 102.7 1130 1092 1211 134.2 1503 1694 190.7 208.3 238.5 2729 29 30 33.45 34.78 38.79 40.57 45.22 47.58 52.97 56.08 62.32 73.64 | 66.44 | 79.06 87.35 104.0 94.46 113.3 19.6 | 259.1 124.1 136.3 1486 164.5 2146 2413 3121 3568 377.2 434.7 40 48.9 60.40 75.40 95.03 1208 154.8 379 4426 7671 1.342 1.779 50 64.46 84.58 112.8 152.7 2093 2903 406.5 5738 | 8151 1.164 | 2400 4.995 | 7218