Grinders Inc. operates a chain of lunch shops. The company is considering two possible expansion plans....

  

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Grinders Inc. operates a chain of lunch shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,740,000. Expected annual net cash inflows are $1,750,000 with zero residual value at the end of ten years. Under Plan B, Grinders would open three larger shops at a cost of $8,140,000. This plan is expected to generate net cash inflows of $1,450,000 per year for ten years, the estimated life of the properties. Estimated residual value is $1,000,000. Grinders uses straight-line depreciation and requires an annual return of 8%. (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.) Grinders Inc. operates a chain of lunch shops. The company is considering two possible expansion plans. Plan A would open eight smaller shops at a cost of $8,740,000. Expected annual net cash inflows are $1,750,000 with zero residual value at the end of ten years. Under Plan B, Grinders would open three larger shops at a cost of $8,140,000. This plan is expected to generate net cash inflows of $1,450,000 per year for ten years, the estimated life of the properties. Estimated residual value is $1,000,000. Grinders uses straight-line depreciation and requires an annual return of 8%. (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.)

Answer rating: 100% (QA)

1 Plan A Accounting Rate of ReturnAverage net incomeOriginal investment100 17500... View the full answer