Reference Present Value of Annuity of $1 Periods 2% 3% 4% 5% 6% 896 10% 12% 14% 16% 18% 20% 0.926 0.909 0.893 0.877 0.833 0.990 0.980 0.971 0.962 0.952 0.943 0.862 0.847 1.942 1.886 | 1.859 2.775 | 2.723 1.970 1.913 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 2.577| 2.487 2.941 2.884 2.829 2.673 2.402 2.322 2.246 2.174 2.106 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 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 5.795 5.242 5.076 3.685 5.601 5.417 4.917 4.623 4.355 4.111 3.889 3.498 3.326 6.230 6.002 | 5.786 4.288 3.812 6.728 6.472 5.582 5.206 4.868 4.564 4.039 3.605 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 7.786 4.607 8.566 8.162 7.435 7.108 6.802 6.247 5.759 5.328 4.946 4.303 4.031 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 10.368 | 9.787 11.255 10.575 9.954 12.134 11.348 10.635 9.986 13.004 12.106 11.296 10.563 9.899 13.865 12.849 11.938 11.118 10.380 9.712 8.559 6.495 5.029 4.656 11 9.253 8.760 8.306 7.887 7.139 5.938 5.453 4.327 12 9.385 8.863 8.384 7.536 6.814 6.194 5.660 5.197 4.793 4.439 9.394 7.904 7.103 5.342 13 8.853 6.424 5.842 4.910 4.533 8.244 7.367 14 9.295 6.628 6.002 5.468 5.008 4.611 4.675 15 7.606 6.811 6.142 5.575 5.092 18.046 16.351 14.877 13.590 12.462 11.470 9.818 22.023 19.523 17.413 15.622 14.094 12.783 10.675 9.077 25.808 22.396 19.600 17.292| 15.372| 13.765 11.258 9.427 32.835 27.35s 23.115 19.793 17.159 15.046 11.925 9.779 5.929 5.353 20 8.514 7.469 6.623 4.870 6.873 25 7.843 6.097 5.467 4.948 8.055 5.517 30 7.003 6.177 4.979 8.244 40 7.105 6.233 5.548 4.997 Reference Future Value of Annuity of $1 Periods 2% 4% 6% 8% 10% 12% 14% 16% 18% 20% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2.030 2.040 2.180 2 2.010 2.020 2.050 2.060 2.080 2.100 2.120 2.140 2.160 2.200 3.122 3.310 3.374 3.572 3 3.030 3.060 3.091 3.153 3.184 3.246 3.440 3.506 3.640 4.310 4.375 4.641 4.779 5.368 4.060 4.122 4.184 4.246 4.506 4.921 5.066 5.215 5.526 7.442 5.101 5.204 5.309 5.416 5.637 5.867 6.105 6.353 6.610 6.877 7.154 .152 .308 6.468 .633 6.802 6.975 7.336 7.716 8.115 8.536 8.977 9.442 9.930 7.662 8.142 8.394 7.214 7.434 7.898 8.923 9.487 10.089 10.730 11.414 12.142 12.916 8.286 8.583 8.892 9.214 9.549 9.897 10.637 11.436 12.300 13.233 14.240 15.327 16.499 14.776 9.369 9.755 10.159 10.583 11.027 11.491 12.488 13.579 16.085 17.519 19.086 20.799 10 10.462 10.950 11.464 12.006 12.578 13.181 14.487 15.937 17.549 19.337 21.321 23.521 25.959 11.567 12.808 16.645 11 12.169 13.486 14.207 14.972 18.531 20.655 23.045 25.733 28.755 32.150 15.026 21.384 30.850 12 12.683 13.412 14.192 15.917 16.870 18.977 24.133 27.271 34.931 39.581 13 13.809 14.680 15.618 16.627 17.713 18.882 21.495 24.523 28.029 32.089 36.786 42.219 48.497 15.974 14 14.947 17.086 18.292 19.599 21.015 24.215 27.975 32.393 37.581 43.672 50.818 59.196 51.660 60.965 15 16.097 17.293 18.599 20.024 21.579 23.276 27.152 31.772 37.280 43.842 72.035 24.297 33.066 72.052 91.025 20 22.019 26.870 29.778 36.786 45.762 57.275 115.380 146.628 186.688 47.727 73.106 133.334 471.981 25 28.243 32.030 36.459 41.646 54.865 98.347 181.871 249.214 342.603 790.948 1,181.882 767.091 1,342.025 2,360.757 4,163.213 7,343.858 47.575 66.439 79.058 356.787 30 34.785 40.568 56.085 113.283 164.494 241.333 530.312 48.886 75.401 95.026 259.057 40 60.402 120.800 154.762 442.593 Reference Present Value of $1 Periods 1% 4% 5% 6% 10% 12% 16% 20% 14% 18% 0.980 0.926 0.990 0.971 0.962 0.952 0.943 0.909 0.893 0.877 0.862 0.847 0.833 0.907 0.718 0.980 0.961 0.943 0.925 0.890 0.857 0.826 0.797 0.769 0.743 0.694 0.840 | 0.794 0.792 0.735 0.712 0.971 0.942 0.915 0.889 0.864 0.751 0.675 0.641 0.609 0.579 0.516 0.961 0.924 0.888 0.855 0.823 0.683 0.636 0.592 0.552 0.482 0.822 0.519 0.951 0.906 0.863 0.784 0.747 0.681 0.621 0.567 0.476 0.437 0.402 0.790 0.746 0.630 0.507 0.942 0.888 0.837 0.705 0.564 0.456 0.410 0.370 0.335 0.933 0.813 0.760 0.711 0.665 0.583 0.400 0.354 0.279 0.871 0.513 0.452 0.314 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 0.837 0.766 0.914 0.703 0.645 0.592 0.500 0.424 0.361 0.308 0.263 0.225 0.194 0.820 0.270 10 0.905 0.744 0.676 0.614 0.558 0.463 0.386 0.322 0.227 0.191 0.162 0.287 11 0.896 0.804 0.722 0.650 0.585 0.527 0.429 0.350 0.237 0.195 0.162 0.135 0.788 0.701 0.168 12 0.887 0.625 0.557 0.497 0.397 0.319 0.257 0.208 0.137 0.112 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 0.758 0.661 0.505 0.442 0.263 0.125 0.099 0.078 14 0.870 0.577 0.340 0.205 0.160 0.642 0.555 0.140 0.108 15 0.861 0.743 0.481 0.417 0.315 0.239 0.183 0.084 0.065 0.820 20 0.673 0.554 0.456 0.377 0.312 0.215 0.149 0.104 0.073 0.051 0.037 0.026 0.780 0.375 0.295 0.016 25 0.610 0.478 0.233 0.146 0.092 0.059 0.038 0.024 0.010 0.742 0.552 0.020 30 0.412 0.308 0.231 0.174 0.099 0.057 0.033 0.012 0.007 0.004 0.453 0.022 40 0.672 0.307 0.208 0.142 0.097 0.046 0.011 0.005 0.003 0.001 0.001 Reference Future Value of $1 Periods 14% 20% 1% 2% 4% 6% 10% 12% 16% 18% 1.010 1.020 1.030 1.040 1.050 1.060 1.080 1.100 1.120 1.140 1.160 1.180 1.200 1.082 1.166 1.020 1.040 1.061 1.103 1.124 1.210 1.254 1.300 1.346 1.392 1.440 1.093 1.191 1.561 1.030 1.061 1.125 1.158 1.260 1.331 1.405 1.482 1.643 1.728 1.262 1.811 1.041 1.082 1.126 1.170 1.216 1.360 1.464 1.574 1.689 1.939 2.074 2.288 2.488 1.051 1.104 1.159 1.217 1.276 1.338 1.469 1.611 1.762 1.925 2.100 2.436 1.062 1.126 1.194 1.265 1.340 1.419 1.587 1.772 1.974 2.195 2.700 2.986 1.407 1.504 3.583 1.072 1.149 1.230 1.316 1.714 1.949 2.211 2.502 2.826 3.185 1.083 1.369 1.851 1.172 1.267 1.477 1.594 2.144 2.476 2.853 3.278 3.759 4.300 1.094 1.195 1.305 1.423 1.551 1.689 1.999 2.358 2.773 3.252 3.803 4.435 5.160 1.791 2.159 10 1.105 1.219 1.344 1.480 1.629 2.594 3.106 3.707 4.411 5.234 6.192 1.116 1.898 4.226 11 1.243 1.384 1.539 1.710 2.332 2.853 3.479 5.117 6.176 7.430 2.012 12 1.127 1.268 1.426 1.601 1.796 2.518 3.138 3.896 4.818 5.936 7.288 8.916 3.452 13 1.138 1.294 1.469 1.665 1.886 2.133 2.720 4.363 5.492 6.886 8.599 10.699 1.513 7.988 14 1.149 1.319 1.732 1.980 2.261 2.937 3.797 4.887 6.261 10.147 12.839 1.801 15 1.161 1.346 1.558 2.079 2.397 3.172 4.177 5.474 7.138 9.266 11.974 15.407 1.486 1.806 20 1.220 2.191 2.653 3.207 4.661 6.727 9.646 13.743 19.461 27.393 38.338 25 1.282 1.641 2.094 2.666 3.386 4.292 6.848 10.835 17.000 26.462 40.874 62.669 95.396 5.743 237.376 30 1.348 1.811 2.427 3.243 4.322 10.063 17.449 29.960 50.950 85.850 143.371 750.378 1,469.772 1.489 3.262 40 2.208 4.801 7.040 10.286 21.725 45.259 93.051 188.884 378.721 Requirements 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? 2. Which expansion plan should Happy Bean choose? Why? 3. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return? Happy Bean Inc. operates a chain of lunch shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,540,000. Expected annual net cash inflows are $1,700,000 with zero residual value at the end of ten years. Under Plan B, Happy Bean would open three larger shops at a cost of $8,040,000. This plan is expected to generate net cash inflows of $1,050,000 per year for ten years, the estimated life of the properties. Estimated residual value is $950,000. Happy Bean uses straight-line depreciation and requires an annual return of 10%. E(Click the icon to view the present value annuity factor table.) (Click the icon to view the present value factor table.) E(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 years Plan B years Begin by computing the payback period for both plans. (Round your answers to one decimal place.) Plan A years Plan B years 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 Match the term with the strengths and weaknesses listed for each of the three capital budgeting models. 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 two 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. Requirement 2. Which expansion plan should Happy Bean choose? Why? net present value. It also has a Recommendation: Invest in It has the payback period. Requirement 3. 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%