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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

.

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