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:

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 $155,000 $129,000 2 126,000 152,000 3 109,000 104,000 4 99,000 73,000 5 31,000 62,000 Total $520,000 $520,000 Each project requires an investment of $281,000. A rate of 6% 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 hapter 26 Homework eBook Print Item 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 2 years Retail Store Expansion 2 years 2 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 Total present value of net cash flow $ Less amount to be invested Net present value $ 2. Because of the timing of the receipt of the net cash flows, the plant expansion offers a higher net present value Feedback Check My Wark Ia. For each project, start with year 1 and accumulate the net cash flows until the amount to be invested is reached. 16. For each project, multiply the present value factor for each year (Refer to Exhibit 2 in the text) by that year's net cash flow. Subtract the amount to be invested from the total present value of the net cash flow. Which project offers the more favorable net present value? 2. Consider when cash flows are received and the time value of money