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Happy Bean Inc operates a chain of doughnut shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,840,000 Expected annual net cash inflows are $1,600,000 with zero residual value at the end of ten years. Under Plan B. Happy Bean would open three larger shops at a cost of $8,540,000. This plan is expected to generate net cash inflows of $1,150,000 per year for ten years, the estimated life of the properties. Estimated residual value is $900,000. Happy Bean uses straight-line depreciation and requires an annual retum of 10% (Click the icon to view the present value annuity factor table.) (Click the icon to view the future value annuity factor table) Read the requirements (Click the icon to view the present value factor table.) (Click the icon to view the future value factor table) 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 (in years) Sil Plan B (in years) 5.5 74 Now compute the ARR (accounting rate of return) for both plans. (Round the percentages to the nearest tenth percent) ew Plan A Plan B 4 bu Requirements 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? 2. Which expansion plan should Happy Bean choose? Why? 3. Estimate Plan A's IRR. How does the IRR compare with the company's required rate of return? Print Done - X Present Value of Annuity of $1 Periods 1% Period 1 0.990 Period 2 1.970 2% 3% 4% 5% 6% 0.980 0.971 0.962 0.952 0.943 0.926 0.909 0.893 0.877 8% 10% 12% 14% 16% 18% 20% 0.862 0.847 0.833 1.942 1.913 1.886 1.859 1.833 1.783 1.736 1.690 1.647 1.605 1.566 1.528 Period 3 2.941 2.884 2.829 2.775 2.723 2.673 2.577 2.487 2.402 2.322 2.246 2.174 2.106 Period 4 3.902 3.808 3.717 3.630 3.546 3.465 3.312 3.170 3.037 2.914 2.798 2.690 2.589 Period 5 4.853 4.713 4.580 4.452 4.329 4.212 3993 3.791 3.605 3.433 3.274 3.127 2.991 Period 6 5.795 Period 7 6.728 5.601 5.417 5.242 5.076 4.917 4.623 4.355 4.111 3.889 3.685 3.498 3.326 6.472 6.230 6.002 5.786 5.582 5.206 4.868 4.564 4.288 4.039 3.812 3.605 Period 8 7.652 7325 7,020 6.733 6.463 6.210 5.747 5.335 4.968 4.639 4.344 4,078 3.837 Period 9 Period 10. 8.566 9.471 8 162 7786 7 435 7 108 6.802 6.247 5.759 5.328 4.946 4.607 4.303 4.031 8.983 8.530 8.111 7.722 7.360 6.710 6.145 5.650 5216 4.833 4.494 4 192 9.787 9.253 8.760 10.575 9.954 9.385 Period 11 10.368 Period 12 11 255 Period 13 12 134 11.348 10.635 9.986 Period 14 13.004 12 106 11.296 10 563 Period 15 13.865 12 849 11.938 11.118 Period 20 18.046 16.351 14.877 13.590 Period 25 22.023 19.523 17 413 15,622 Period 30 25.808 22.396 19.600 17 292 Period 40 32.835 27.355 23.115 19.793 9.899 9.295 10.380 9.712 12.462 11 470 9.818 8.514 14.094 12.783 10.675 9.077 15 372 13.765 11 258 9.427 8.055 17.159 15.046 11.925 9.779 8.244 7.469 7.843 8.306 7.887 7.139 6.495 5.938 5.453 5.029 4.656 4.327 8.863 8.384 7.536 6.814 6.194 5.660 5.197 4,793 4.439 9.394 8.853 7.904 7.103 6.424 5.842 5.342 4.910 4.533 8.244 7.367 6.628 8.559 7.606 6.811 6002 5.468 5.008 4.611 6.142 5.575 5.092 4 675 6.623 5.929 5.353 6 873 6.097 5.467 7.003 6.177 5.517 4.979 7.105 6.233 5.548 4.997 4.870 4.948 Che Present Value of $1 Periods 1% 2% 3% 4% 5% Period 1 0.990 0.980 0.971 0.962 0.952 6% 8% 0.943 0.926 10% 12% 14% 16% 18% 20% 0.909 0 893 0.877 0.862 0.847 0.833 Period 2 0.980 0.961 0.943 0.925 0.907 0.890 0.857 0.826 0.797 0.769 0.743 0.718 0.694 Period 3 0.971 0.942 0.915 0.889 0.864 Period 4 0.961 0.924 0.888 0.855 0.840 0.794 0.751 0.823 0.792 0.735 0.683 0.536 0.592 0.552 0.516 0.712 0.675 0.641 0.609 0.579 0.482 Period 5 0.951 0.906 0.863 0.822 Period 6 0.942 0888 0.837 0.790 Period 7 0.933 0.871 0.813 0.760 Period 8 0.923 0.853 0.789 0.731 0.677 Period 9 0.914 0.837 0.766 0.703 0.645 Period 10 0.905 0.820 0.744 0.676 0.614 Period 11 0.896 0804 0.722 0.650 0.585 0.527 Period 12 0.887 0.788 0.701 0.625 0.557 0.497 0.319 0.257 0.784 0.747 0.681 0.621 0.667 0.519 0.746 0.705 0.630 0.564 0.507 0.456 0711 0665 0.583 0.513 0.452 0.400 0.354 0.627 0.540 0.467 0.404 0.351 0.305 0.266 0,592 0.500 0.424 0.361 0.308 0.263 0.225 0.194 0.558 0.463 0.386 0.322 0.270 0.227 0.191 0.162 0429 0.350 0.287 0.237 0.195 0.162 0.135 0,397 0.476 0.437 0.402 0.410 0.370 0.335 0314 0.279 0.233 0208 0.168 0.137 0.112 Period 13 0.879 0.773 0.681 0.601 0.530 0.469 0.368 0 290 0229 0.182 0.145 0.116 0.093 Period 14 0.870 0.758 0.661 0.577 0505 0.442 0 340 Period 15 0.861 Period 20 0.820 Period 25 0.780 Period 30 0.742 Period 40 0.672 0.743 0.642 0.673 0.554 0.456 0.377 0.610 0.478 0375 0.295 0.552 0.412 0.308 0.231 0.453 0.307 0208 0.142 0.555 0.481 0417 0315 0.263 0.205 0.239 0.183 0160 0.140 0.125 0.099 0.078 0.108 0.084 0065 0.046 0.312 0215 0.149 0.104 0.073 0.051 0.037 0.026 0.233 0.146 0.092 0.059 0.038 0.024 0.016 0.010 0174 0.099 0.067 0.033 0020 0012 0.007 0.004 0,097 0022 0.011 0.005 0.003 0.001 0.001 Che Future Value of Annuity of $1 Periods 1% 2% 3% 4% 5% 8% Period 1 1.000 1.000 1.000 1.000 Period 2 2,010 2.020 2.030 2.040 Period 3 3.030 3.060 3.091 3.122 3.153 3.184 3.246 Period 4 4.060 4.122 4.184 4 246 4.310 Period 5 5.101 5.204 5.309 5.416 5.526 6% 10% 12% 1.000 1.000 1.000 1.000 1.000 1.000 1.000 2.050 2.060 2.080 2.100 2120 3.310 3.374 3.440 3.506 4.375 4.506 4.641 4.779 4.921 5.066 5.637 5.867 6.105 6.353 14% 16% 18% 20% 1.000 1.000 2.140 2160 2.180 2.200 3.572 3.640 5.215 5368 6.610 6.877 7.154 7.442 Period 6 6.152 6.308 6.468 6.633 6.802 Period 7 7.214 7.434 7.662 7.898 Period 8 8.286 8.583 Period 9 9.369 9.755 8.142 8.394 8.892 9.214 9.549 9897 10.159 10.583 11.027 11.491 6.975 7.336 7.716 8.115 8.923 9.487 10.089 8.536 10.730 8.977 9.442 9.930 10.637 11.436 12.300 13.233 11.414 12.142 14 240 16.327 12.916 16.499 12.488 13.579 14.776 16.085 17.519 19.086 20.799 Period 10 10 462 10 950 11.464 12.006 12.578 13.181 14.487 15.937 17 549 19 337 21.321 23.521 25.959 Period 11 11 567 12 169 12.808 13 486 14.207 14.972 16 645 18 531 20 655 23.045 26.733 28.756 32 150 Period 12 12.683 13 412 14.192 15.026 15.917 16.870 18.977 21.384 24.133 27:271 30.850 34 931 39 581 Period 13 13.809 14 680 15.618 16.627 17.713 18.882 21 495 24 523 28.029 32.089 36.786 42.219 48.497 Period 14 14 947 15.974 17 086 18.292 19.599 21 015 24.215 27.975 32 393 37.581 43.672 50.818 59.196 Period 15 16.097 17.293 18.599 20 024 21.579 23 276 27 152 31.772 37 280 43.842 51.660 60.965 72.035 Period 201 22.019 24 297 26.870 29.778 33.066 36 786 45.762 57.275 72.052 91 025 115 380 146 628 186.688 Period 25 28 243 32.030 36 459 41.646 47.727 64 865 73 106 98.347 133 334 181.871 249.214 342.603 471.981 Period 30. 34.785 40.568 47.575 56.085 66.439 79.068 113 283 164 494 241.333 356.787 530.312 790 948 1,181.882 ans Period 40: 48.886 60 402 75 401 95.026 120 800 154.762 259 057 442 593 767 091 1.342 025 2,360 767 4,163.213 7,343.858) Future Value of $1 Periods 1% 2% 3% 4% 5% 6% 8% 10% 12% 14% 16% 18% 20% Period 1 1.010 1.020 1.030 1.040 1.050 1.060 1080 1.100 1.120 1.140 1.160 1.180 1.200 Period 2 1.020 1.040 1.061 1.082 1.103 1.124 1.166 1.210 1.254 1.300 1.346 1.392 1.440 Period 3 1.030 1.061 1.093 1.125 1.158 1.191 1.260 1.331 1.405 1.482 1.561 1.643 1.728 Period 4 1.041 1.082 1.126 1.170 1.216 1.262 1.360 1.464 1.574 1.689 1.811 1.939 2.074 Period 5 1.051 1.104 1.159 1.217 1.276 1.338 1.469 1.611 1.762 1.925 2.100 2.288 2.488 Period 6 1.062 1.126 1.194 1.265 1.340 1419 1.587 1.772 1.974 2.195 2436 2.700 2.986 Period 7 1.072 1.149 1.230 1.316 1407 1.504 1.714 1.949 2.211 2.502 2826 3.185 3.583 Period 8 1.083 1.172 1.267 1.369 1477 Period 9 1.094 1.195 1.305 1.423 1.551 1.594 1.689 1.999 1.851 2.144 2.476 2.853 3.278 3.759 4.300 2.358 2.773 3.252 3.803 4,435 5.160 Period 10 1.105 1.219 1.344 1.480 1,629 1.791 2.159 2.594 3.106 3.707 4.411 5.234 6.192 Period 11 1.116 1.243 1.384 1.539 1710 1.898 2.332 2.853 3.479 4.228 5.117 6.176 7.430 Period 12 1.127 1268 1,426 1.601 1.796 2012 2.518 3 138 3,896 4.818 5.936 7.288 8.916 Period 13 1.138 1.294 1.469 1.665 1.886 2.133 2720 3452 4.363 5.492 6 888 8.599 10.699 Period 14 1.149 1.319 1.513 1.732 1980 2261 2.937 3797 4.887 6.261 7.988 10 147 12.839 Period 15 1161 1,346 1,558 1.801 2.079 2.397 3 172 4 177 5474 7138 9.266 11.974 16.407 Period 20 1220 1.486 1.806 2 191 2.653 3.207 4.661 6.727 0646 13.743 19.461 27.393 38 338 Period 25 1.282 1.641 2.094 2.666 3.386 4.292 6.848 10 835 17.000 26 462 40 874 62 669 95.306 Period 30 1348 1.811 2.427 3.243 4 322 5.743 10 063 17 449 29 960 50.960 85 850 143.371 237376 Period 40 1489 2.208 3.262 4.801 7.040 10 286 21 725 46 259 93 051 188 884 378 721 760 378 1.469.772

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