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 $450,000 $500,000

2 450,000 400,000

3 340,000 350,000

4 280,000 250,000

5 180,000 200,000

Total $1,700,000 $1,700,000

Each project requires an investment of $900,000. A rate of 15% has been selected for the net present value analysis.

Instructions

1 Compute the following for each product:

Cash payback period.

The net present value. Use the present value of $1 table appearing in the chapter (exhibit 2).

Prepare a brief report advising management on the relative merits of each project.