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
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
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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Question
Cash Payback Period,
Elite Apparel Inc. is considering two investment projects. The estimated net
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: |
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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