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The company is considering two possible expansion plans. Plan A wsuld open eight smaller shops at a cost of $8,440,000. Expected antual not cath infows are \$1,525.000 for 10 years, wth zero residual value at the end of 10 years. Under Plan B, Layos Compary would open theee targer shops at a cost of 59,240,000. This plan is expecied to generate net cash infiow or 51,070,000 per year for 10 years, the estimated usetul life of the properties. Estrated fesidual vave for Plan b is $900,000. Lagos Compary uses straightaine depreciation and requires an annual tetum of 9%. Lajos Company operates a chain of sandwich shops. 1) (Cick the icon to view additional irformation) (Click the iccn to view Present Value of S1 table) Read the fequirements. (Cick the icon to view Present Vave of Crdinary Annuity of 51 table.) (Cick the icon to view Future Value of 51 table.) (Cick the icon to view Future Value of Crdhary Annuty of $1 table.) Requirement 1, Compule the payeack, the ARR, the NPV, ans the peofraoiliy index of these two paans. Caculase the payback for both pians. (Round your answers to one decimat place, x ) Calcilate the NPV of Plan B. (Compiete all answer boxes. Enter a for any zero balances or amounts that do not apply to the plan. Enter any factor amounts to throe decimal places, X.XOX. Use parentheses or a minus sign for a negative net present watue.) Calculate the prottabisty index of these two plans, (Round to two decimal places XX ) = Proftability insex Requirement 2 . What are the strengths and weaknesses of these captal budgesing methods? Makch the term with the strengths and weaknesses listed for each of the four capaad budgeting mooels. However, it ignores profitability and the time value of money. Can be used to assess profitability, but it ignotes the time value of money. it allows us 10 compare atemative investments in present value terms and it also accounts for differences in the invostments' inital cost. It has nene of the woaknesses of the other models. Requirement 3. Which expansion plan should Lajos Company choose? Wiy? Lajos Company should invest in bocause it has a pryback poriod, a profitability index Requirement 4. Estimate Pian As IRR. How does the IRR compare with the company's required rate of return? The IRR (intemal rate of return) of Plan A is betwoen This rate the company's hurdle rate of 9%

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