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

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
$129,000

$108,000

2
105,000

126,000

3
91,000

87,000

4
82,000

61,000

5
26,000

51,000

Total
$433,000

$433,000

Each project requires an investment of $234,000. 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
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 .