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 $150,000   $125,000   2 122,000   147,000   3 106,000   101,000   4 96,000   70,000   5 29,000   60,000   Total $503,000   $503,000     Each project requires an investment of $272,000. A rate of 15% 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. 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.

Question

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 $150,000   $125,000  
2 122,000   147,000  
3 106,000   101,000  
4 96,000   70,000  
5 29,000   60,000  
Total $503,000   $503,000  

 

Each project requires an investment of $272,000. A rate of 15% 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.

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.

 

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