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	$145,000		$121,000
2	119,000		143,000
3	102,000		98,000
4	93,000		68,000
5	29,000		58,000
Total	$488,000		$488,000

Each project requires an investment of $264,000. A rate of 10% 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
Present value of net cash flow total	$	$
Less amount to be invested	$	$
Net present value	$	$

Answer 1

Answer- 1-b)- Net present value - Plant Expansion= $124229

Retail store expansion = $120167

Explanation-

Calculation of Investment's Net Present Value
Project Plant Expansion
	Net Cash Flows $ (a)	Present Value of 1 at 10% (b)	Present Value of cash flows (c=a*b) $
Year 1	145000	0.909	131805
Year 2	119000	0.826	98294
Year 3	102000	0.751	76602
Year 4	93000	0.683	63519
Year 5	29000	0.621	18009
Totals
Total present value of cash inflow (a)			388229
Total cash outflow (b)	-264000	1	-264000
Net Present Value $ (c=a-b)			124229
Calculation of Investment's Net Present Value
Project Retail Store Expansion
	Net Cash Flows $ (a)	Present Value of 1 at 10% (b)	Present Value of cash flows (c=a*b) $
Year 1	121000	0.909	109989
Year 2	143000	0.826	118118
Year 3	98000	0.751	73598
Year 4	68000	0.683	46444
Year 5	58000	0.621	36018
Totals
Total present value of cash inflow (a)			384167
Total cash outflow (b)	-264000	1	-264000
Net Present Value $ (c=a-b)			120167