Concept explainers
Using payback, APR,
Learning Objectives 2,4
- Plan A 1.09 profitability index; Plan B $(1,793,250) NPV
Hill Company operates a chain of sandwich shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,700,000. Expected annual net
Requirements
- 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 Hill Company choose? Why?
- Estimate Plan A's
IRR . How does the IRR compare with the company's requiredrate of return ?
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