Question
Question Content Area Cash payback period, net present value method, and analysis Elite Apparel Inc. is considering two investment projects. The estimated net cash flows
Question Content Area
Cash payback period, net present value method, and analysis
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 | $158,000 | $132,000 |
2 | 130,000 | 156,000 |
3 | 112,000 | 107,000 |
4 | 101,000 | 75,000 |
5 | 32,000 | 63,000 |
Total | $533,000 | $533,000 |
Each project requires an investment of $288,000. A rate of 12% has been selected for the net present value analysis.
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 project.
Project | 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.
Line Item Description | Plant Expansion | Retail Store Expansion |
---|---|---|
Total present value of net cash flow | $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 expansionretail store expansion
offers a higher
net present valuenet cash flow
.
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started