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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 $136,000 $114,000
2 112,000 134,000
3 96,000 92,000
4 87,000 64,000
5 28,000 55,000
Total $459,000 $459,000

Each project requires an investment of $248,000. 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 product.

Cash Payback Period
Plant Expansion

1 year2 years3 years4 years5 years

Retail Store Expansion

1 year2 years3 years4 years5 years

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 $fill in the blank 3 $fill in the blank 4
Less amount to be invested $fill in the blank 5 $fill in the blank 6
Net present value $fill in the blank 7 $fill in the blank 8

2. Because of the timing of the receipt of the net cash flows, the

plant expansion/retail store expansion

offers a higher

net present value/net cash flow.

.

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