Question Help Lukes Company operates a chain of sandwich shops. (Click the icon to view additional information.) (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements. (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) Requirement 1. Compute the payback, the ARR, the NPV, and the profitability index of these two plans. Calculate the payback for both plans. your answers to one decimal place, X.X.) - Payback Plan A II years Plan B = years Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the nearest tenth percent, X.X%.) The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,400,000. 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, Lukes Company would open three larger shops at a cost of $8,100,000. This plan is expected to generate net cash inflows of $1,020,000 per year for 10 years, the estimated useful life of the properties. Estimated residual value for Plan B is $1,100,000. Lukes Company uses straight-line depreciation and requires an annual return of 9%. Present Value of $1 Periods 1 2 3 4 5 1% 0.990 0.980 0.971 0.961 0.951 2% 0.980 0.961 0.942 0.924 0.906 3% 0.971 0.943 0.915 0.888 0.863 4% 0.962 0.925 0.889 0.855 0.822 5% 0.952 0.907 0.864 0.823 0.784 6% 0.943 0.890 0.840 0.792 0.747 7% 0.935 0.873 0.816 0.763 0.713 8% 0.926 0.857 0.794 0.735 0.681 9% 0.917 0.842 0.772 0.708 0.650 10% 0.909 0.826 0.751 0.683 0.621 12% 0.893 0.797 0.712 0.636 0.567 14% 0.877 0.769 0.675 0.592 0.519 15% 0.870 0.756 0.658 0.572 0.497 16% 0.862 0.743 0.641 0.552 0.476 18% 0.847 0.718 0.609 0.516 0.437 20% 0.833 0.694 0.579 0.482 0.402 6 7 8 9 10 0.942 0.933 0.923 0.914 0.905 0.888 0.871 0.853 0.837 0.820 0.837 0.813 0.789 0.766 0.744 0.790 0.760 0.731 0.703 0.676 0.746 0.711 0.677 0.645 0.614 0.705 0.665 0.627 0.592 0.558 0.666 0.623 0.582 0.544 0.508 0.630 0.583 0.540 0.500 0.463 0.596 0.547 0.502 0.460 0.422 0.564 0.513 0.467 0.424 0.386 0.507 0.452 0.404 0.361 0.322 0.456 0.400 0.351 0.308 0.270 0.432 0.376 0.327 0.284 0.247 0.410 0.354 0.305 0.263 0.227 0.370 0.314 0.266 0.225 0.191 0.335 0.279 0.233 0.194 0.162 11 12 13 0.896 0.887 0.879 0.804 0.788 0.773 n 750 0.722 0.701 0.681 0.650 0.625 0.601 0.585 0.557 0.530 non 0.527 0.497 0.469 0.475 0.444 0.415 0.429 0.397 0.368 nin 0.388 0.356 0.326 200 0.350 0.319 0.290 202 0.287 0.257 0.229 0.237 0.208 0.182 0.215 0.187 0.163 n111 0.195 0.168 0.145 0.162 0.137 0.116 nnnn 0.135 0.112 0.093 nn70 14. n070 n677 200 non nan Present Value of Ordinary Annuity of $1 Periods 1 2 3 4 5 1% 0.990 1.970 2.941 3.902 4.853 2% 0.980 1.942 2.884 3.808 4.713 3% 0.971 1.913 2.829 3.717 4.580 4% 0.962 1.886 2.775 3.630 4.452 5% 0.952 1.859 2.723 3.546 4.329 6% 0.943 1.833 2.673 3.465 4.212 7% 0.935 1.808 2.624 3.387 4.100 8% 0.926 1.783 2.577 3.312 3.993 9% 0.917 1.759 2.531 3.240 3.890 10% 0.909 1.736 2.487 3.170 3.791 12% 0.893 1.690 2.402 3.037 3.605 14% 0.877 1.647 2.322 2.914 3.433 15% 0.870 1.626 2.283 2.855 3.352 16% 0.862 1.605 2.246 2.798 3.274 18% 0.847 1.566 2.174 2.690 3.127 20% 0.833 1.528 2.106 2.589 2.991 6 7 8 9 10 5.795 6.728 7.652 8.566 9.471 5.601 6.472 7.325 8.162 8.983 5.417 6.230 7.020 7.786 8.530 5.242 6.002 6.733 7.435 8.111 5.076 5.786 6.463 7.108 7.722 4.917 5.582 6.210 6.802 7.360 4.767 5.389 5.971 6.515 7.024 4.623 5.206 5.747 6.247 6.710 4.486 5.033 5.535 5.995 6.418 4.355 4.868 5.335 5.759 6.145 4.111 4.564 4.968 5.328 5.650 3.889 4.288 4.639 4.946 5.216 3.784 4.160 4.487 4.772 5.019 3.685 4.039 4.344 4.607 4.833 3.498 3.812 4.078 4.303 4.494 3.326 3.605 3.837 4.031 4.192 11 12 13 10.368 9.787 11.255 10.575 12.134 11.348 120 9.253 9.954 10.635 8.760 9.385 9.986 10 502 8.306 8.863 9.394 noon 7.887 8.384 8.853 7.499 7.943 8.358 7.139 7.536 7.904 6.805 7.161 7.487 6.495 6.814 7.103 5.938 6.194 6.424 5.453 5.660 5.842 5.234 5.421 5.583 5.029 5.197 5.342 4.656 4.793 4.910 Enno 4.327 4.439 4.533 14 1910 000 0 71 7 700 7 207 701 BACO A011 Future Value of $1 Periods 1 2 3 4 5 1% 1.010 1.020 1.030 1.041 1.051 2% 1.020 1.040 1.061 1.082 1.104 3% 1.030 1.061 1.093 1.126 1.159 4% 1.040 1.082 1.125 1.170 1.217 5% 1.050 1.103 1.158 1.216 1.276 6% 1.060 1.124 1.191 1.262 1.338 7% 1.070 1.145 1.225 1.311 1.403 8% 1.080 1.166 1.260 1.360 1.469 9% 1.090 1.188 1.295 1.412 1.539 10% 1.100 1.210 1.331 1.464 1.611 12% 1.120 1.254 1.405 1.574 1.762 14% 1.140 1.300 1.482 1.689 1.925 15% 1.150 1.323 1.521 1.749 2.011 6 7 8 9 10 1.062 1.072 1.083 1.094 1.105 1.126 1.149 1.172 1.195 1.219 1.194 1.230 1.267 1.305 1.344 1.265 1.316 1.369 1.423 1.480 1.340 1.407 1.477 1.551 1.629 1.419 1.504 1.594 1.689 1.791 1.501 1.606 1.718 1.838 1.967 1.587 1.714 1.851 1.999 2.159 1.677 1.828 1.993 2.172 2.367 1.772 1.949 2.144 2.358 2.594 1.974 2.211 2.476 2.773 3.106 2.195 2.502 2.853 3.252 3.707 2.313 2.660 3.059 3.518 4.046 11 12 13 11 1.116 1.127 1.138 11.10 1.243 1.268 1.294 4240 1.384 1.426 1.469 4 512 1.539 1.601 1.665 1.710 1.796 1.886 10on 1.898 2.012 2.133 201 2.105 2.252 2.410 2.332 2.518 2.720 2027 2.580 2.813 3.066 2212 2.853 3.138 3.452 2 700 3.479 3.896 4.363 4.226 4.818 5.492 4.652 5.350 6.153 1 722 2670 1007 7070 Future Value of Ordinary Annuity of $1 Periods 1 2 1% 1.000 2.010 3.030 4.060 5.101 2% 1.000 2.020 3.060 4.122 5.204 3% 1.000 2.030 3.091 4.184 5.309 4% 1.000 2.040 3.122 4.246 5.416 5% 1.000 2.050 3.153 4.310 5.526 6% 1.000 2.060 3.184 4.375 5.637 7% 1.000 2.070 3.215 4.440 5.751 8% 1.000 2.080 3.246 4.506 5.867 9% 1.000 2.090 3.278 4.573 5.985 10% 1.000 2.100 3.310 4.641 6.105 12% 1.000 2.120 3.374 4.779 6.353 14% 1.000 2.140 3.440 4.921 6.610 15% 1.000 2.150 3.473 4.993 6.742 3 4 5 6 7 8 9 6.152 7.214 8.286 9.369 10.46 6.308 7.434 8.583 9.755 10.95 6.468 7.662 8.892 10.16 11.46 6.633 7.898 9.214 10.58 12.01 6.802 8.142 9.549 11.03 12.58 6.975 8.394 9.897 11.49 13.18 7.153 8.654 10.260 11.98 13.82 7.336 8.923 10.64 12.49 14.49 7.523 9.200 11.03 13.02 15.19 7.716 9.487 11.44 13.58 15.94 8.115 10.09 12.30 14.78 17.55 8.536 10.73 13.23 16.09 19.34 8.754 11.07 13.73 16.79 20.30 10 11 12 13 14 11.57 12.68 13.81 110C 12.17 13.41 14.68 1607 12.81 14.19 15.62 13.49 15.03 16.63 400 14.21 15.92 17.71 10an 14.97 16.87 18.88 15.78 17.89 20.14 16.65 18.98 21.50 17.56 20.14 22.95 18.53 21.38 24.52 2700 20.65 24.13 28.03 2220 23.04 27.27 32.09 24.35 29.00 34.35 17 na 210g EC A1 27 60 Anon 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 % Un modo llva +raN4+4!1mYua quo+WO+ uu+ ran 4+ TD Plan A: Net Cash Annuity PV Factor PV Factor Present Years Inflow (i=9%, n=10) (i=9%, 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 the parentheses or a minus sign for a negative net present value.) Plan B: Net Cash Annuity PV Factor PV Factor Present Years Inflow (i=9%, n=10) (i=9%, n=10) Value 1 - 10 Present value of annuity 10 Present value of residual value Total PV of cash inflows 0 Initial Investment Choose from any list or enter any number in the input fields and then continue to the next question. Calculate the profitability index of these two plans. (Round to two decimal places X.XX.) = Profitability index Plan A = Plan B II 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 v 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. easy to understand, is based on cash flows, and highlights risks. However, it ignores profitability and the time value of money. 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. ARR Net present value Payback method | Profitability index Requirement 3. Which expansion plan should Lukes Company choose? Why? Lukes Company should invest in because it has a payback period, a ARR, 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 9%