%x P26-31A (similar to) stion Help i More Info Lolas Company operates a chain of sandwich shops. i (Click the icon to view additional information.) U ULO Read the requirements. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,410,000. 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, Lolas Company would open three larger shops at a cost of $8,300,000. 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 $1,000,000. Lolas Company uses straight-line depreciation and requires an annual return of 9%. 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.) Amount invested 1 Print Done Plan A $ 8,410,000 Expected annual net cash inflow 1,525,000 1,050,000 Payback 5.5 years 7.9 years Plan B 8,300,000 / $ i Requirements Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the nearest tenth percent, X.X%.) Average annual operating income Average amount invested = ARR Plan A % Plan B % 1. Compute the payback, the ARR, the NPV, and the profitability index of these two plans. 2. What are the strengths and weaknesses of these capital budgeting methods? 3. Which expansion plan should Lolas Company choose? Why? 4. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return? Choose from any list or enter any number in the input fields and then click Check Answer. Print Done 7 parts I remaining Clear All Check Answer %x P26-31A (similar to) stion Help i More Info Lolas Company operates a chain of sandwich shops. i (Click the icon to view additional information.) U ULO Read the requirements. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,410,000. 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, Lolas Company would open three larger shops at a cost of $8,300,000. 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 $1,000,000. Lolas Company uses straight-line depreciation and requires an annual return of 9%. 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.) Amount invested 1 Print Done Plan A $ 8,410,000 Expected annual net cash inflow 1,525,000 1,050,000 Payback 5.5 years 7.9 years Plan B 8,300,000 / $ i Requirements Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the nearest tenth percent, X.X%.) Average annual operating income Average amount invested = ARR Plan A % Plan B % 1. Compute the payback, the ARR, the NPV, and the profitability index of these two plans. 2. What are the strengths and weaknesses of these capital budgeting methods? 3. Which expansion plan should Lolas Company choose? Why? 4. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return? Choose from any list or enter any number in the input fields and then click Check Answer. Print Done 7 parts I remaining Clear All Check