Tree City Inc. operates a chain of coffee shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,940,000. Expected annual net cash inflows are $1,600,000 with zero residual value at the end of ten years. Under Plan E Tree City would open three larger shops at a cost of $8,540,000. This plan is expected to generate net cash inflows of $1,400,000 per year for ten years, the estimated life of the properties. Estimated residual value for Plan B is $1,075,000. Tree City uses straight-line depreciation and requires an annual return of 8% 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 Plan B Now compute the ARR (accounting rate of return) for both plans. (Round the percentages to the nearest tenth percent.) Plan A Plan B years years pute Plan B. (Round your answ 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 Tree City choose? Why? Recommendation: Invest nIt has the net present value. It also has apayback 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 betweern This rate | the company's hurdle rate of 8%