Question

P26-31A (similar to) Lolas Company operates a chain of sandwich shops. i (Click the icon to view additional information.) (Click the icon to view Present Value of $1 table.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) Read the requirements Requirement 1. Compute the payback, the ARR, the NPV, and the profitability index of these two plans. More Info - X Calculate the payback for both plans. (Round your answers to one decimal place, X.X.) L Plan A Plan B = = = Payback years years The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,450,000. 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 $1,300,000. Lolas Company uses straight-line depreciation and requires an annual return of 7%. Print Done

Answer 1

	Initial investment	/	Annual Cash flow	=	Payback
Plan A	8450000	/	1525000	=	5.5 Years
Plan B	8300000	/	1050000	=	7.9 years