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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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