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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 $111,000 $92,000 90,000 109,000 78,000 74,000 4 71,000 52,000 22,000 45,000 Total $372,000 $372,000 2. 3. in

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 $111,000 $92,000 90,000 109,000 78,000 74,000 4 71,000 52,000 22,000 45,000 Total $372,000 $372,000 2. 3. in

FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
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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 $111,000 $92,000 90,000 109,000 3 78,000 74,000 4 71,000 52,000 22,000 45,000 Total $372,000 $372,000 Each project requires an investment of $201,000. 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 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 0.627 0.467 0.404 0.327 0.233 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.
Transcribed Image Text: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 $111,000 $92,000 90,000 109,000 3 78,000 74,000 4 71,000 52,000 22,000 45,000 Total $372,000 $372,000 Each project requires an investment of $201,000. 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 0.840 0.751 0.712 0.658 0.579 0.792 0.683 0.636 0.572 0.482 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 7 0.665 0.513 0.452 0.376 0.279 0.627 0.467 0.404 0.327 0.233 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.
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 372,000 x 372,000 X Less amount to be invested -201,000 V -201,000 Net present value 42,220 X 37,348 X 2. Because of the timing of the receipt of the net cash flows, the plant expansion offers a higher net present value
Transcribed Image Text: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 372,000 x 372,000 X Less amount to be invested -201,000 V -201,000 Net present value 42,220 X 37,348 X 2. Because of the timing of the receipt of the net cash flows, the plant expansion offers a higher net present value
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