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 $158,000 $132,000 2 130,000 156,000 3 112,000 107,000 4 101,000 75,000 5 32,000 63,000 Total $533,000 $533,000 Each project requires an investment of $288,000. A rate of 10% 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 product. Cash Payback Period Plant Expansion Retail Store Expansion
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 $158,000 $132,000 2 130,000 156,000 3 112,000 107,000 4 101,000 75,000 5 32,000 63,000 Total $533,000 $533,000 Each project requires an investment of $288,000. A rate of 10% 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 product. Cash Payback Period Plant Expansion Retail Store Expansion
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
Problem 1PS
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Cash Payback Period,
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 | $158,000 | $132,000 | ||
| 2 | 130,000 | 156,000 | ||
| 3 | 112,000 | 107,000 | ||
| 4 | 101,000 | 75,000 | ||
| 5 | 32,000 | 63,000 | ||
| Total | $533,000 | $533,000 |
Each project requires an investment of $288,000. A rate of 10% has been selected for the net present value analysis.
| Present Value of $1 at |
|||||
| 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 product.
| 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 | $fill in the blank 3 | $fill in the blank 4 |
| Less amount to be invested | $fill in the blank 5 | $fill in the blank 6 |
| Net present value | $fill in the blank 7 | $fill in the blank 8 |
2. Because of the timing of the receipt of the net cash flows, the offers a higher .
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