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 | $150,000 | $126,000 | ||
2 | 123,000 | 147,000 | ||
3 | 106,000 | 101,000 | ||
4 | 96,000 | 71,000 | ||
5 | 30,000 | 60,000 | ||
Total | $505,000 | $505,000 |
Each project requires an investment of $273,000. A rate of 12% 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 | $ | $ |
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