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Leches Company operates a chain of sandwich shops.

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The company is considering two possible expansion plans. Plan A would open

eight smaller shops at a cost of $$8,440,000.$ Expected annual net cash inflows are

$$1,550,000$ for $10$ years, with zero residual value at the end of $10$ years. Under

Plan B$,$ Leches Company would open three larger shops at a cost of $$8,000,000.$

This plan is expected to generate net cash inflows of $$1,000,000$ per year for $10$

years, the estimated useful life of the properties. Estimated residual value for Plan

$B$ is $$1,300,000.$ Leches Company uses straight$-$line depreciation and requires an

annual return of $7\%.$

Compute the payback, the ARR, the NPV$,$ and the profitability index of these

two plans.

What are the strengths and weaknesses of these capital budgeting methods?

Which expansion plan should Leches Company choose? Why?

Estimate Plan A$\text{'}$s IRR. How does the IRR compare with the company's

required rate of return?

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Requirement $1.$ Compute the payback, the ARR, the NPV$,$ and the profitability index of these two plans.

Requirements

$1.$ 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 Leches Company choose? Why?

$4.$ Estimate Plan $A\text{'}s$ IRR. How does the IRR compare with the company's

required rate $of$ return?

Compute the payback, the ARR, the NPV$,$ and the profitability index of these

What are the strengths and weaknesses of these capital budgeting methods?

Which expansion plan should Leches Company choose? Why? $4.$ Estimate Plan A$\text{'}$s IRR. How does the IRR compare with the company's

required rate of return?

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Present value of residual value

Total PV of cash inflows

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Initial Investment

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