Question

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	$100,000		$84,000
2	82,000		98,000
3	71,000		67,000
4	64,000		47,000
5	20,000		41,000
Total	$337,000		$337,000

Each project requires an investment of $182,000. A rate of 12% 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	$	$
Less amount to be invested
Net present value	$	$

Answer 1

plant expansion 182000 cumulative Retail store expansion cumulative 182000 sement 84000 capital investment net cash flows year1 year2 year3 year4 100000 82000 710001 64000 20000 100000 182000 253000 317000 337000 84000 98000 67000 47000 41000 182000 249000 296000 337000 year5 1a) ANSWER cash pay back period 2 years 2 years plant expansion Retail store expansion

present value of net cash Retail store flows expansion PV factor present value values at of net cash 12% flows plant PV factor expansion values at 12% net cash flows year1 100000 0.893 year2 82000 0.797 year3 71000 0.712 year4 64000 0.636 year5 20000 0.567 total present value of net cash flows 89300 65354 50552 40704 11340 257250 84000 98000 67000 47000 41000 0.893 0.797 0.712 0.636 0.567 75012 78106 47704 29892 23247 253961 1b) ANSWER total present value of net cash flows less amount to be invested net present value plant expansion 257250 182000 75250 Retail store expansion 253961 182000 71961