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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$.)$

Calculate the ARR $($accounting rate of return$)$ for both plans. $($Round your answers to the nearest tenth percent, X$.$X$\%.)$

Caclulate the NPV $($net present value$)$ of each plan. Begin by calculating the NPV of Plan A$.($Complete all answer boxes. Enter a $"0"$ for any zero bala

minus sign for a negative net present value.$)$

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The company is considering two possible expansion plans. Plan A would open

eight smaller shops at a cost of $$8,425,000.$ Expected annual net cash inflows are

$$1,525,000$ 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 $$8,000,000$

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 $7\%.$

Requirements

Use parentheses or a

Compute the payback, the ARR, the NPV$,$ and the profitability index of these

two plans.

What are the strengths and weaknesses of these capital budgeting methods?

Which expansion plan should Lulus Company choose? Why?

Estimate Plan A$\text{'}$s IRR. How does the IRR compare with the company's

required rate of return?