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

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Accounting

Cash Payback Period, Net Present Value Method, and Analysis

Elite Apparel Inc. is considering two investment projects. Theestimated net cash flows from each project are as follows:

YearPlant ExpansionRetail Store Expansion
1$110,000$92,000
290,000108,000
378,00074,000
470,00052,000
522,00044,000
Total$370,000$370,000

Each project requires an investment of $200,000. A rate of 10%has been selected for the net present value analysis.

Present Value of $1 at CompoundInterest
Year6%10%12%15%20%
10.9430.9090.8930.8700.833
20.8900.8260.7970.7560.694
30.8400.7510.7120.6580.579
40.7920.6830.6360.5720.482
50.7470.6210.5670.4970.402
60.7050.5640.5070.4320.335
70.6650.5130.4520.3760.279
80.6270.4670.4040.3270.233
90.5920.4240.3610.2840.194
100.5580.3860.3220.2470.162

Required:

1a. Compute the cash payback period for eachproject.

Cash Payback Period
Plant Expansion2 years
Retail Store Expansion2 years

1b. Compute the net present value. Use thepresent value of $1 table above. If required, round to the nearestdollar.

Plant ExpansionRetail 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 thenet cash flows, the plant expansion  offers a higher netpresent value .

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