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Elite Apparel Inc. is cosidering two investment projects. The estimated net cash flows from each project are as follows: Year Plant Expansion Retail Store Expansion
Elite Apparel Inc. is cosidering 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.
1. Compute the following for each project:
a. Cash payback period.
b. The net present value. Use the present value of $1 table appearig in this chapter.
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 |
2. Prepare a brief report advising management on the relative merits of each project.
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