Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:YearPlant ExpansionRetail Store Expansion1$136,000 $114,000 2112,000 134,000 396,000 92,000 487,000 64,000 528,000 55,000 Total$459,000 $459,000 Each project requires an investment of $248,000. A rate of 6% has been selected for the net present value analysis.Present Value of $1 at Compound InterestYear6%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 each project. Cash Payback PeriodPlant Expansion Retail Store Expansion 1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar. Plant ExpansionRetail Store ExpansionTotal present value of net cash flow$ fill in the blank 3$ fill in the blank 4Less amount to be investedfill in the blank 5fill in the blank 6Net present value$ fill in the blank 7$ fill in the blank 8 1$136,000$114,000112,000134,00096,00092,000487,00064,000528,00055,000Total$459,000$459,000Each project requires an investment of $248,000. A rate of 6% has been selected for the net present value analysis.Present Value of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.8330.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.4820.7470.6210.5670.4970.4020.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.2330.5920.4240.3610.2840.194100.5580.3860.3220.2470.162Required:la. Compute the cash payback period for each project.Cash Payback PeriodPlant Expansion2 yearsRetail Store Expansion2 years1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar.Plant ExpansionRetail Store ExpansionTotal present value of net cash flowLess amount to be investedNet present value2. Because of the timing of the receipt of the net cash flows, the plant expansionoffers a higher net present value2.3. Cash Payback Period, Net Present Value Method, and AnalysisElite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:YearPlant ExpansionRetail Store Expansion$136,000$114,0002112,000134,000396,00092,000487,00064,00028,00055,000Total$459,000$459,000Each project requires an investment of $248,000. A rate of 6% has been selected for the net present value analysis.Present Value of $1 at Compound InterestYear6%10%12%15%20%0.9430.9090.8930.8700.83320.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.4820.7470.6210.5670.4970.4020.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.2330.5920.4240.3610.2840.194100.5580.3860.3220.2470.162Required:la. Compute the cash payback period for each project.Cash Payback PeriodPlant Expansion2 yearsRetail Store Expansion2 years1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar.Plant ExpansionRetail Store ExpansionTotal present value of net cash flowLess amount to be invested

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 $136,000 $114,000 2 112,000 134,000 3 96,000 92,000 4 87,000 64,000 5 28,000 55,000 Total $459,000 $459,000 Each project requires an investment of $248,000. A rate of 6% 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 Retail Store Expansion 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 Total present value of net cash flow $ fill in the blank 3 $ fill in the blank 4 Less amount to be invested fill in the blank 5 fill in the blank 6 Net present value $ fill in the blank 7 $ fill in the blank 8

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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Question

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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	$136,000		$114,000
2	112,000		134,000
3	96,000		92,000
4	87,000		64,000
5	28,000		55,000
Total	$459,000		$459,000

Each project requires an investment of $248,000. A rate of 6% 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
Retail Store Expansion

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
Total present value of net cash flow	$ fill in the blank 3	$ fill in the blank 4
Less amount to be invested	fill in the blank 5	fill in the blank 6
Net present value	$ fill in the blank 7	$ fill in the blank 8

1
$136,000
$114,000
112,000
134,000
96,000
92,000
4
87,000
64,000
5
28,000
55,000
Total
$459,000
$459,000
Each project requires an investment of $248,000. A rate of 6% 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
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
0.747
0.621
0.567
0.497
0.402
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
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162
Required:
la. 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
Total present value of net cash flow
Less amount to be invested
Net present value
2. Because of the timing of the receipt of the net cash flows, the plant expansion
offers a higher net present value
2.
3.

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
$136,000
$114,000
2
112,000
134,000
3
96,000
92,000
4
87,000
64,000
28,000
55,000
Total
$459,000
$459,000
Each project requires an investment of $248,000. A rate of 6% has been selected for the net present value analysis.
Present Value of $1 at Compound Interest
Year
6%
10%
12%
15%
20%
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
0.747
0.621
0.567
0.497
0.402
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
0.592
0.424
0.361
0.284
0.194
10
0.558
0.386
0.322
0.247
0.162
Required:
la. 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
Total present value of net cash flow
Less amount to be invested

Expert Solution

Step 1

Payback period in capital budgeting refers to the time required to recover the initial investment.

Net Present value in capital budgeting refer to Present value of net cash inflow minus initial investment

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