PR26-2A

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 450000 500000

2 450000 400000

3 340000 350000

4 280000 250000

5 180000 200000

Total 1700000 1700000

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 product:

a. Cash payback period.

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

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