Question

What is the ARR, NPV, and profitability of these two plans?
Lolas Company operates a chain of sandwich shops. (Click the icon to view Present Value of $1 table.) (Click the icon to view additional information.) (Click the icon to view Present Value of Ordinary Annuity of $1 table.) Read the requirements. (Click the icon to view Future Value of $1 table.) (Click the icon to view Future Value of Ordinary Annuity of $1 table.) Requirement 1. Compute the payback, the ARR, the NPV, and the profitability index of these two plans -X More Info Calculate the payback for both plans. (Round your answers to one decimal place, XX) Amount invested Expected annual net cash inflow Payback 5.5 years 1,525,000 $ 8,450,000 Plan A 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% 7.9 years 8,300,000 1,050,000 $ Plan B Calculate the ARR (accounting rate of return) for both plans. (Round your answers to the nearest tenth percent, X.X%.) ARR Plan A Plan B Print Done

Answer 1

computation of Accounting rate of retur, ARR:= Annual net cash inflow x 100 Initial anvestment ARR Annual net cash inflow $ 1525000 anitial Investment 84,50000 plan- A 118.06% plan – B $ 1050,000 $83,00,000 12.651 Computation of het present value Plan- A = (present valce of cash inflows] I [anitial investment = [$ 1525000 x P var @ 7.1 for 10 years] [ $ 84,50,000) El $1525000 X 7.0236]-[$ 8450000 = = $ 107 10 990 - $ 84,50.000 $ 22 60 990

Net present value for plan-A = $2260990) plan-B we can use the above formula c| + (0 50 600 x ,02 36 + $ {3CD, DOS X 6'5o93) [ $ 83,00,000) $ 80 35570 - $83.60,000 . - $ 264 430 . Net prebent value for plan-B = - $264430