Requirements:

1. Compute the payback, the NPV, and the profitability index of these two plans.

2. Which expansion should Leches choose? Why?

Learning Objectives 2, 4 P26-30A Using payback, ARR, NPV, IRR, and profitability index to make capital investment decisions 1. Plan A 1.10 profitability index; Plan B $(1,227,400) NPV Leches operates a chain of sandwich shops. The company is considering (wo possible expansion plans. Plan A would open eight smaller shops at a cost of $8,400,000. Expected annual net cash inflows are $1,500,000, with zero residual value at the end of 10 years. Under Plan B, Leches would open three larger shops at a cost of $8,250,000. This plan is expected to generate net cash inflows of $1,080,000 per year for 10 years, the estimated useful life of the proper ties. Estimated residual value for Plan B is $1,000,000. Leches uses straight-line depreciation and requires an annual return of 10%