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   $450,000     $500,000   2    450,000    400,000 3    340,000    350,000 4    280,000    250,000 5    180,000    200,000 Total $1,700,000 $1,700,000 Each project requires an investment of $900,000. 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 Answer Choices: 1 year, 2 years, 3 years, 4 years, or 5 years Retail Store Expansion Answer Choices: 1 year, 2 years, 3 years, 4 years, or 5 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 ___________   offers a higher

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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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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   $450,000     $500,000  
2    450,000    400,000
3    340,000    350,000
4    280,000    250,000
5    180,000    200,000
Total $1,700,000 $1,700,000

Each project requires an investment of $900,000. 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

Answer Choices:
1 year, 2 years, 3 years, 4 years, or 5 years

Retail Store Expansion Answer Choices:
1 year, 2 years, 3 years, 4 years, or 5 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 ___________   offers a higher _____________  .

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