ash 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 $175,000 $146,000 2 143,000 172,000 3 123,000 118,000 4 112,000 82,000 5 35,000 70,000 Total $588,000 $588,000 Each project requires an investment of $318,000. A rate of 20% 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 fill in the blank years Retail Store Expansion fill in the blank 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 $fill in the blank $fill in the blank Less amount to be invested $fill in the blank $fill in the blank Net present value $fill in the blank $fill in the blank 2. Because of the timing of the receipt of the net cash flows, the fill in the blank offers a higher fill in the blank.

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 2PA

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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	$175,000		$146,000
2	143,000		172,000
3	123,000		118,000
4	112,000		82,000
5	35,000		70,000
Total	$588,000		$588,000

Each project requires an investment of $318,000. A rate of 20% 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	fill in the blank years
Retail Store Expansion	fill in the blank 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	$fill in the blank	$fill in the blank
Less amount to be invested	$fill in the blank	$fill in the blank
Net present value	$fill in the blank	$fill in the blank

2. Because of the timing of the receipt of the net cash flows, the fill in the blank offers a higher fill in the blank.

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