Question

# Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...

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 \$128,000 \$107,000 2 105,000 126,000 3 91,000 86,000 4 82,000 60,000 5 25,000 52,000 Total \$431,000 \$431,000

Each project requires an investment of \$233,000. A rate of 15% 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 Retail Store Expansion

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 Present value of net cash flow total \$ \$ Less amount to be invested \$ \$ Net present value \$ \$

1a) Cash payback period :

 Plant expansion Retail store expansion Year 1 128000 128000 107000 107000 Year 2 105000 233000 126000 233000 Year 3 91000 324000 86000 319000 Year 4 82000 406000 60000 379000 Year 5 25000 431000 52000 431000

Cash payback period :

Plant expansion = 2 Years

Retail Store expansion = 2 years

1b) Net present value = Present value of cash inflow-Present value of cash outflow

 Plant Expansion Retail Store Expansion Present value of net cash flow total 309947 305098 Less amount to be invested 233000 233000 Net present value 76947 72098

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