Question
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
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 | $440,000 | $490,000 |
2 | 440,000 | 390,000 |
3 | 350,000 | 360,000 |
4 | 270,000 | 240,000 |
5 | 180,000 | 200,000 |
Total | $1,680,000 | $1,680,000 |
1. Each project has an initial investment of $900,000. A rate of 15% has been selected for net present value analysis.
Compute the following for each product:
A. Cash payback period.
B. The net present value. Use the present value of $1 table appearing in this chapter (Exhibit 2).
C. Prepare a brief report advising management on the relative merits of each project. (Minimum two full paragraphs.)
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