The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,600,000. 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, Locos Company would open three larger shops at a cost of $8,250,000. 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 $990,000. Locos Company annual return of 8% uses straight-line depreciation and requires an Present Value of $1 Periods 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 15% 16% 18% 20% 0.952 0.907 0.990 0.980 0.971 0.962 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.870 0.862 0.847 0.833 1 0.925 0,890 0.873 0.857 0.842 0.826 0.769 0.756 0.743 0.718 0.694 0.980 0.961 0.943 0.797 3 0.971 0.942 0.915 0.889 0.864 0.840 0.816 0.794 0.772 0.751 0.712 0.675 0.658 0.641 0.609 0.579 0.482 0.402 4 0.961 0.924 0.888 0.855 0.823 0.792 0.763 0.735 0.708 0.683 0.636 0.592 0.572 0.552 0.516 0.951 0.906 0.863 0.822 0.784 0.747 0.713 0.681 0.650 0.621 0.567 0.519 0.476 0.437 5 0.497 6 0.942 0.888 0.837 0.790 0.746 0.705 0.666 0.630 0.596 0.564 0.507 0.456 0.432 0.410 0.370 0.335 0.933 0.760 0.711 0.665 0.623 0.583 0.513 0.452 0.400 0.279 0.871 0.813 0.547 0.376 0.354 0.314 0.233 0.923 0.853 0.789 0.731 0.677 0.627 0.582 0.540 0.502 0.467 0.404 0.351 0.327 0.305 0.266 9 0.914 0.837 0.766 0.703 0.645 0.592 0.544 0.500 0.460 0.424 0.361 0.308 0.284 0.263 0.225 0.194 10 0.905 0.820 0.744 0.676 0.614 0.558 0.508 0.463 0.422 0.386 0.322 0.270 0.247 0.191 0.162 0.227 11 0.896 0.804 0.585 0.527 0.475 0.388 0.237 0.215 0.195 0.162 0.135 0.722 0.650 0.429 0.350 0.287 12 0.887 0.788 0.701 0.497 0.444 0.356 0.319 0.208 0.112 0.625 0.557 0.397 0.257 0.187 0.168 0.137 13 0.879 0.773 0.681 0.601 0.530 0.469 0.415 0.368 0.326 0.290 0.229 0.182 0.163 0.145 0.116 0.093 14 0.870 0.758 0.661 0.577 0.505 0.442 0.388 0.340 0.299 0.263 0.205 0.160 0.141 0.125 0.099 0.078 0.065 15 0.861 0.743 0.642 0.555 0.481 0.417 0.315 0.275 0.239 0.183 0.140 0.123 0.108 0.084 0.362 16 0.853 0.728 0.623 0.534 0.458 0.394 0.339 0.292 0.252 0.218 0.163 0.123 0.107 0.093 0.071 0.054 0.844 0.513 0.436 0.371 0.198 0.146 0.108 17 0.714 0.605 0.317 0.270 0.231 0.093 0.080 0.060 0.045 18 0.836 0.700 0.587 0.494 0.416 0.350 0.296 0.250 0.212 0.180 0.130 0.095 0.081 0.069 0.051 0.038 19 0.828 0.686 0.570 0.475 0.396 0.331 0.277 0.232 0.194 0.164 0.116 0.083 0.070 0.060 0.043 0.031 20 0.820 0.073 0.673 0.554 0.456 0.377 0.312 0.258 0.215 0.178 0.149 0.104 0.061 0.051 0.037 0.026 O 660 0 053 21 n 359 n811 O 538 n430 n044 0031 Present Value of Ordinary Annuity of $1 2% 5% 6% 9% 12% Periods 1% 3% 4% 7% 8% 10% 14% 15% 16% 18% 20% 0.990 0.980 0.971 0.962 0.952 0.943 0.935 0.926 0.917 0.909 0.893 0.877 0.870 0.862 0.847 0.833 1 1.970 1.942 1.913 1.886 1.859 1.833 1.808 1.783 1.759 1.736 1.690 1.647 1.626 1.566 1.528 2 1.605 3 2.402 2.941 2.884 2.829 2.775 2.723 2.673 2.624 2.577 2.531 2.487 2.322 2.283 2.246 2.174 2.106 3.902 3.717 2.690 4 3.808 3.630 3.546 3.465 3.387 3.312 3.240 3.170 3.037 2.914 2.855 2.798 2.589 5 4.853 4.713 4.580 4.452 4.329 4.212 4.100 3.993 3.890 3.791 3.605 3.433 3.352 3.274 3.127 2.991 5.795 5.601 5.417 5.242 5.076 4.917 4.767 4.623 4.486 4.355 4.111 3.889 3.784 3.685 3.498 3.326 6.728 6.472 6.230 6.002 5.786 5.582 5.033 4.868 4.288 4.160 3.812 3.605 7 5.389 5.206 4.564 4.039 7.652 8.566 4.639 7.325 7.020 6.733 6.463 6.210 5.971 5.747 5.535 5.335 4.968 4.487 4.344 4.078 3.837 7.786 6.802 4.303 9 8.162 7.435 7.108 6.515 6.247 5.995 5.759 5.328 4.946 4.772 4.607 4.031 4.192 10 9.471 8.983 8.530 8.111 7.722 7.360 7.024 6.710 6.418 6.145 5.650 5.216 5.019 4.833 4.494 11 10.368 9.787 9.253 8.760 8.306 7.887 7.499 7.139 6.805 6.495 5.938 5.453 5.234 5.029 4.656 4.327 11.255 10.575 9.954 12 9.385 8.863 8.384 7.943 7.536 7.161 6.814 5.660 5.197 4.793 4.439 4.533 6.194 5.421 11.348 10.635 13 12.134 9.986 9.394 8.853 8.358 7.904 7.487 7.103 6.424 5.842 5.583 5.342 4.910 13.004 12.106 11.296 10.563 7.367 14 9.899 9.295 8.745 8.244 7.786 6.628 6.002 5.724 5.468 5.008 4.611 12.849 11.938 11.118 10.380 15 13.865 9.712 9.108 8.559 8.061 7.606 6.811 6.142 5.847 5.092 4.675 5.575 14.718 13.57812.561 11.652 10.83810.106 16 9.447 8.851 8.313 7.824 6.974 6.265 5.954 5.669 5.162 4.730 15.562 14.292 13.166 12.16611.274 10.477 14.992 13.754 12.659 11.690 14.324 13.134 14.877 13.590 12.462 17 9.122 8.544 8.022 7.120 6.373 5.222 4.775 4.812 9.763 6.047 5.749 18 17.226 15.678 10.828 8.201 7.250 16.398 10.059 9.372 8.756 6.467 6.128 5.818 5.273 19 12.085 11.158 10.336 9.604 8.950 8.365 7.366 6.550 6.198 5.877 5.316 4.844 20 18.046 16.351 11.470 10.594 9.818 9.129 8.514 7.469 6.623 6.259 5.929 5.353 4.870 18 857| 17 011. 15 415. 1A 020 7 562 21 12 821 11 764 10 836. 10 017 687 312 5.973. 5284 A801 Future Value of $1 8% Periods 1% 2% 3% 4% 5% 6% 7% 9% 10% 12% 14% 15% 1.020 1.030 1.040 1.050 1.080 1.090 1.100 1.120 1.140 1 1,010 1.060 1,070 1.150 2 1.020 1.040 1.061 1.082 1.103 1.124 1.145 1.166 1.188 1.210 1.254 1.300 1.323 1.030 1.061 1.093 1.125 1.158 1.260 1.295 1.331 1.405 1.482 1.521 3 1.191 1.225 4 1.041 1.082 1.126 1.170 1.216 1.262 1.311 1.360 1.412 1.464 1.574 1.689 1.749 1.051 1.104 1.159 1.217 1.276 1.338 1.403 1.469 1.539 1.611 1.762 1.925 2.011 5 6 1.062 1.126 1.194 1.265 1.340 1.419 1.501 1.587 1.677 1.772 1.974 2.195 2.313 7 1.072 1.149 1.230 1.316 1.407 1.504 1.606 1.714 1.828 1.949 2.211 2.502 2.660 1.083 1.172 1.267 1.369 1.851 1.993 1.477 1.594 1.718 2.144 2.476 2.853 3.059 1.094 1.195 1.305 1.423 1.551 1.689 1.838 1.999 2.172 2.358 2.773 3.252 3.518 10 1.219 1.344 1.480 1.629 1.967 2.159 2.367 2.594 3.106 4.046 1.105 1.791 3.707 1.243 1.384 1.710 2.853 11 1.116 1.539 1,898 2.105 2.332 2.580 3.479 4,226 4.652 12 1.127 1.268 1.426 1.601 1.796 2.012 2.252 2.518 2.813 3.138 3.896 4.818 5.350 13 1.138 1.294 1.469 1.665 1.886 2.133 2.410 2.720 3.066 3.452 4.363 5.492 6.153 14 1.149 1.319 1.513 1.732 1.980 2.261 2.579 2.937 3.342 3.798 4.887 6.261 7.076 15 1.161 1.346 1.558 1.801 2.079 2.397 2.759 3.172 3.642 4.177 5.474 7.138 8.137 6.130 16 1.173 1.373 1.605 1.873 2.183 2.540 2.952 3.426 3.970 4.595 8.137 9.358 1.400 1.653 1.948 4.328 5.054 17 1.184 2.292 2.693 3.159 3.700 6.866 9.276 10.76 1.428 1.702 2.026 3.380 4.717 5.560 7.690 18 1.196 2.407 2.854 3.996 10.58 12.38 19 1.208 2.107 3.026 4.316 5.142 6.116 8.613 1.457 1.754 2.527 3.617 12.06 14.23 20 1.220 1.486 1.806 2.191 2.653 3.207 3,870 4.661 5.604 6.727 9.646 13.74 16.37 2 786 21 1232 1516 1 860 2.279 A 141 5.034 6100 7 400 10 80 18 82 3000 15 67. Future Value of Ordinary Annuity of $1 1% 2% 3% 4% 5% 6% 7% 8% 9% 10% 12% 14% 15% Periods 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 2.010 2.030 2.040 2.050 2.060 2.080 2.090 2.100 2.140 2.150 2 2.020 2.070 2.120 3.030 3.060 3.091 3.122 3.153 3.184 3.215 3.246 3.278 3.310 3.374 3.440 3.473 4 4.060 4.122 4.184 4.246 4.310 4.375 4.440 4.506 4.573 4,641 4,779 4.921 4.993 6.105 5.101 5.204 5.309 5.416 5.526 5.637 5.751 5.867 5.985 6.353 6.610 6.742 5 6.152 6.308 6.468 6.633 6.802 6.975 7.153 7.336 7.716 8.115 8.536 8.754 6 7.523 7.662 7 7.214 7.434 7.898 8.142 8.394 8.654 8.923 9.200 9.487 10.09 10.73 11.07 8.286 8.583 8.892 9.214 9.549 9.897 10.260 10.64 11.03 11.44 12.30 13.23 13.73 9.369 9.755 10.16 10.58 11.03 11.49 11.98 12.49 13.02 13.58 14.78 16.09 16.79 20.30 10 10.46 10.95 11.46 12.01 12.58 13.18 13.82 14.49 15.19 15.94 17.55 19.34 11 11.57 12.17 12.81 13.49 14.21 14.97 15.78 16.65 17.56 18.53 20.65 23.04 24.35 12.68 13.41 14.19 15.03 15.92 16.87 17.89 18.98 20.14 21.38 27.27 29.00 12 24.13 13 14.68 17.71 32.09 13.81 15.62 16.63 18.88 20.14 21.50 22.95 24.52 28.03 34.35 15.97 17.09 27.98 40.50 14 14.95 18.29 19.60 21.02 22.55 24.21 26.02 32.39 37.58 15 16.10 17.29 18.60 20.02 21.58 23.28 25.13 27.15 29.36 31.77 37.28 43.84 47.58 16 17.26 18.64 20.16 21.82 23.66 25.67 27.89 30.32 33.00 35.95 42.75 50.98 55.72 17 18.43 20.01 21.76 23.70 25.84 28.21 30.84 33.75 36.97 40.54 48.88 59.12 65.08 18 23.41 34.00 41.30 45.60 68.39 19.61 21.41 25.65 28.13 30.91 37.45 55.75 75.84 19 20.81 22.84 25.12 27.67 30.54 33.76 37.38 41.45 46.02 51.16 63.44 78.97 88.21 20 22.02 24.30 26.87 29.78 33.07 36.79 41.00 45.76 51.16 57.28 72.05 91.02 102.4 2 0 23.24. 25 78 31 97 35 72. M87 50 42 56 76 Q1 70 11 Caclulate the NPV (net present value) of each plan. Begin by calculating the NPV of Plan A. (Complete all answer boxes. Enter a "O" for any zero balances or amounts that do not apply to the plan. Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) Plan A: Annuity PV Factor Net Cash PV Factor Present (i=8%, n 10) (i-8%, n 10) Years Inflow Value Present value of annuity 1-10 10 Present value of residual value Total PV of cash inflows Initial Investment 0 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. Enter any factor amounts to three decimal places, X.XXX. Use parentheses or a minus sign for a negative net present value.) Plan B Net Cash Annuity PV Factor PV Factor Present (i=8%, n 10) (i=8%, n=10) Years Inflow Value Present value of annuity 1 10 10 Present value of residual value Total PV of cash inflows 0 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 / Plan B = Requirement 2. What are the strengths and weaknesses of these capital budgeting methods?? 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 Locos Company choose? Why? net present Locos Company should invest in because it has a payback period, a ARR, a Vprofitability index value, and a 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 8%