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 2 3 4 5 Total Year 1 2 Each project requires an investment of $199,000. A rate of 12% has been selected for the net present value analysis. Present Value of $1 at Compound Interest 10% 3 4 5 6 7 8 9 10 Required: 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.6 $109,000 90,000 77,000 70,000 22,000 $368,000 0.627 0.592 0.558 0.909 0.826 12% 0.893 0.870 0.833 0.797 0.756 0.694 0.751 0.712 0.658 0.683 0.636 0.572 0.621 0.564 0.513 0.467 0.424 0.386 43,000 $368,000 $92,000 107,000 74,000 52,000 0.404 0.361 0.322 15% 0.247 20% 0.567 0.497 0.402 0.507 0.432 0.335 0.452 0.376 0.279 0.327 0.233 0.284 1a. Compute the cash payback period for each product. Cash Payback Period 0.579 0.482 0.194 0.162 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 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 2 3 4 5 Total Year 1 2 Each project requires an investment of $199,000. A rate of 12% has been selected for the net present value analysis. Present Value of $1 at Compound Interest 10% 3 4 5 6 7 8 9 10 Required: 6% 0.943 0.890 0.840 0.792 0.747 0.705 0.6 $109,000 90,000 77,000 70,000 22,000 $368,000 0.627 0.592 0.558 0.909 0.826 12% 0.893 0.870 0.833 0.797 0.756 0.694 0.751 0.712 0.658 0.683 0.636 0.572 0.621 0.564 0.513 0.467 0.424 0.386 43,000 $368,000 $92,000 107,000 74,000 52,000 0.404 0.361 0.322 15% 0.247 20% 0.567 0.497 0.402 0.507 0.432 0.335 0.452 0.376 0.279 0.327 0.233 0.284 1a. Compute the cash payback period for each product. Cash Payback Period 0.579 0.482 0.194 0.162 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 2. Because of the timing of the receipt of the net cash flows, the offers a higher
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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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
2
3
4
5
Total
Year
1
2
Each project requires an investment of $199,000. A rate of 12% has been selected for the net present value analysis.
Present Value of $1 at Compound Interest
10%
3
4
5
6
7
8
9
10
Required:
6%
0.943
0.890
0.840
0.792
0.747
0.705
0.6
$109,000
90,000
77,000
70,000
22,000
$368,000
0.627
0.592
0.558
0.909
0.826
12%
0.893
0.870
0.833
0.797 0.756 0.694
0.751
0.712
0.658
0.683 0.636 0.572
0.621
0.564
0.513
0.467
0.424
0.386
43,000
$368,000
$92,000
107,000
74,000
52,000
0.404
0.361
0.322
15%
0.247
20%
0.567 0.497 0.402
0.507
0.432
0.335
0.452 0.376 0.279
0.327
0.233
0.284
1a. Compute the cash payback period for each product.
Cash Payback Period
0.579
0.482
0.194
0.162
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
2. Because of the timing of the receipt of the net cash flows, the
offers a higher
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