Elite Apparel Inc. is considering two investment projects. Theestimated net cash flows from each...

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Accounting

Elite Apparel Inc. is considering two investment projects. Theestimated net cash flows from each project are as follows:
Year Plant Expansion Retail Store Expansion
1 $102,000 $85,000
2 83,000 100,000
3 72,000 68,000
4 65,000 48,000
5 20,000 41,000
Total $342,000 $342,000
Each project requires an investment of $185,000. A rate of 10%has been selected for the net present value analysis.
Present Value of $1 at CompoundInterest
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 eachproject.
Cash Payback Period
Plant Expansion
Retail Store Expansion
1b. Compute the net present value. Use thepresent value of $1 table above. If required, round to the nearestdollar.
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 thenet cash flows, the offers ahigher .

Answer & Explanation Solved by verified expert

3.8 Ratings (491 Votes)

1a
	Cash Payback Period
Plant Expansion	2 years	(102000+83000) = 185000
Retail Store Expansion	2 years	(100000+85000) = 185000

1b
	Plant Expansion	Retail Store Expansion
Present value of net cash flow total	272163	269178
Less amount to be invested	185000	185000
Net present value	87163	84178

2
Because of the timing of the receipt of the net cash flows, the PLANT EXPANSION offers a higher NET PRESENT VALUE

Workings:
	Plant Expansion
	Net cash flows	PV factor 10%	Present value
1	102000	0.909	92718
2	83000	0.826	68558
3	72000	0.751	54072
4	65000	0.683	44395
5	20000	0.621	12420
		Total	272163

	Retail Store Expansion
	Net cash flows	PV factor 10%	Present value
1	85000	0.909	77265
2	100000	0.826	82600
3	68000	0.751	51068
4	48000	0.683	32784
5	41000	0.621	25461
		Total	269178

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Transcribed Image Text

In: AccountingElite Apparel Inc. is considering two investment projects. Theestimated net cash flows from each project...Elite Apparel Inc. is considering two investment projects. Theestimated net cash flows from each project are as follows:YearPlant ExpansionRetail Store Expansion1$102,000$85,000283,000100,000372,00068,000465,00048,000520,00041,000Total$342,000$342,000Each project requires an investment of $185,000. A rate of 10%has been selected for the net present value analysis.Present Value of $1 at CompoundInterestYear6%10%12%15%20%10.9430.9090.8930.8700.83320.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.48250.7470.6210.5670.4970.40260.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.23390.5920.4240.3610.2840.194100.5580.3860.3220.2470.162Required:1a. Compute the cash payback period for eachproject.Cash Payback PeriodPlant ExpansionRetail Store Expansion1b. Compute the net present value. Use thepresent value of $1 table above. If required, round to the nearestdollar.Plant ExpansionRetail Store ExpansionPresent 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 offers ahigher .

Year	Plant Expansion	Retail Store Expansion
1	$102,000	$85,000
2	83,000	100,000
3	72,000	68,000
4	65,000	48,000
5	20,000	41,000
Total	$342,000	$342,000

Present Value of $1 at CompoundInterest
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