Question
Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project
Cash Payback Period, Net Present Value Method, and Analysis
Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:
Year | Plant Expansion | Retail Store Expansion | ||
1 | $146,000 | $122,000 | ||
2 | 120,000 | 144,000 | ||
3 | 103,000 | 98,000 | ||
4 | 93,000 | 69,000 | ||
5 | 30,000 | 59,000 | ||
Total | $492,000 | $492,000 |
Each project requires an investment of $266,000. A rate of 10% has been selected for the net present value analysis.
Present Value of $1 at Compound Interest | |||||
Year | 6% | 10% | 12% | 15% | 20% |
1 | 0.943 | 0.909 | 0.893 | 0.870 | 0.833 |
2 | 0.890 | 0.826 | 0.797 | 0.756 | 0.694 |
3 | 0.840 | 0.751 | 0.712 | 0.658 | 0.579 |
4 | 0.792 | 0.683 | 0.636 | 0.572 | 0.482 |
5 | 0.747 | 0.621 | 0.567 | 0.497 | 0.402 |
6 | 0.705 | 0.564 | 0.507 | 0.432 | 0.335 |
7 | 0.665 | 0.513 | 0.452 | 0.376 | 0.279 |
8 | 0.627 | 0.467 | 0.404 | 0.327 | 0.233 |
9 | 0.592 | 0.424 | 0.361 | 0.284 | 0.194 |
10 | 0.558 | 0.386 | 0.322 | 0.247 | 0.162 |
Required:
1a. Compute the cash payback period for each project.
Cash Payback Period | |
Plant Expansion | |
Retail Store Expansion |
1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar.
Plant Expansion | Retail Store Expansion | |
Present value of net cash flow total | $ | $ |
Less amount to be invested | $ | $ |
Net present value | $ | $ |
2. Because of the timing of the receipt of the net cash flows, the. BLANK offers a higher BLANK .
1 BLANK answer OPTIONs = plant expanison or retail store expansion
2 blank answer options = net present value or net cash flow
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