Question

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	$130,000		$109,000
2	107,000		128,000
3	92,000		88,000
4	83,000		61,000
5	26,000		52,000
Total	$438,000		$438,000

Each project requires an investment of $237,000. A rate of 20% has been selected for the net present value analysis.

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

Required:

1a. Compute the cash payback period for each project.

	Cash Payback Period
Plant Expansion	2 years
Retail Store Expansion	2 years

1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar.

	Plant Expansion	Retail Store Expansion
Total present value of net cash flow	$	$
Less amount to be invested
Net present value	$	$

2. Because of the timing of the receipt of the net cash flows, the plant expansion  offers a higher net present value .

what formula would I use to calculate the amounts listed in the datatable?

Answer 1

Computation of Present Value of Cash Inflow
Year	PVF @20%	Plant Expansion		Retail Store Expansion
		Amount	PV	Amount	PV
1	0.833	$130,000	$108,290	$109,000	$90,797
2	0.694	107,000	$74,258	128,000	$88,832
3	0.579	92,000	$53,268	88,000	$50,952
4	0.482	83,000	$40,006	61,000	$29,402
5	0.402	26,000	$10,452	52,000	$20,904
Total		$438,000	$286,274	$438,000	$280,887

Computation of Net Presetn Value
	Plant Expansion	Retail Store Expansion
PV of Cash inflow	$286,274	$280,887
Less: Investment	237000	237000
Net Present Value	$49,274	$43,887