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 $136,000 $114,000 2 112,000 134,000 3 96,000 92,000 4 87,000 64,000 5 28,000 55,000 Total $459,000 $459,000 Each project requires an investment of $248,000. A rate of 6% 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 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 Total present value of net cash flow $ 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
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 $136,000 $114,000 2 112,000 134,000 3 96,000 92,000 4 87,000 64,000 5 28,000 55,000 Total $459,000 $459,000 Each project requires an investment of $248,000. A rate of 6% 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 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 Total present value of net cash flow $ 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
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
Related questions
Question
100%
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 | $136,000 | $114,000 | ||
| 2 | 112,000 | 134,000 | ||
| 3 | 96,000 | 92,000 | ||
| 4 | 87,000 | 64,000 | ||
| 5 | 28,000 | 55,000 | ||
| Total | $459,000 | $459,000 |
Each project requires an investment of $248,000. A rate of 6% has been selected for the
| 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 project.
| 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 | |
| Total present value of net cash flow | $ 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 |
Transcribed Image Text:1
$136,000
$114,000
112,000
134,000
96,000
92,000
4
87,000
64,000
5
28,000
55,000
Total
$459,000
$459,000
Each project requires an investment of $248,000. A rate of 6% 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
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
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
8
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:
la. 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.
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 plant expansion
offers a higher net present value
2.
3.
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
$136,000
$114,000
2
112,000
134,000
3
96,000
92,000
4
87,000
64,000
28,000
55,000
Total
$459,000
$459,000
Each project requires an investment of $248,000. A rate of 6% has been selected for the net present value analysis.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
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
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
8
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:
la. 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.
Plant Expansion
Retail Store Expansion
Total present value of net cash flow
Less amount to be invested
Expert Solution
Step 1
| Payback period in capital budgeting refers to the time required to recover the initial investment. |
| Net Present value in capital budgeting refer to Present value of net cash inflow minus initial investment |
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