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Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...

Question

Cash Payback Period, Net Present Value Method, and Analysis Elite Apparel Inc. is considering two investment...

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 $145,000 $121,000
2 119,000 143,000
3 102,000 98,000
4 93,000 68,000
5 29,000 58,000
Total $488,000 $488,000

Each project requires an investment of $264,000. 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 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
Present value of net cash flow total $ $
Less amount to be invested $ $
Net present value $ $

Answers

Answer- 1-b)- Net present value - Plant Expansion= $124229

Retail store expansion = $120167

Explanation-

Calculation of Investment's Net Present Value
Project Plant Expansion
Net Cash Flows $ (a) Present Value of 1 at 10% (b) Present Value of cash flows (c=a*b) $
Year 1 145000 0.909 131805
Year 2 119000 0.826 98294
Year 3 102000 0.751 76602
Year 4 93000 0.683 63519
Year 5 29000 0.621 18009
Totals
Total present value of cash inflow (a) 388229
Total cash outflow (b) -264000 1 -264000
Net Present Value $ (c=a-b) 124229
Calculation of Investment's Net Present Value
Project Retail Store Expansion
Net Cash Flows $ (a) Present Value of 1 at 10% (b) Present Value of cash flows (c=a*b) $
Year 1 121000 0.909 109989
Year 2 143000 0.826 118118
Year 3 98000 0.751 73598
Year 4 68000 0.683 46444
Year 5 58000 0.621 36018
Totals
Total present value of cash inflow (a) 384167
Total cash outflow (b) -264000 1 -264000
Net Present Value $ (c=a-b) 120167


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