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	$173,000		$145,000
2	142,000		170,000
3	122,000		117,000
4	111,000		82,000
5	35,000		69,000
Total	$583,000		$583,000

Each project requires an investment of $315,000. 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	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 .

Feedback

Answer 1

А 1 1a) 2 Year Plant Expansion Retail store expansion 5 0 $ 1 $ 2 $ 31 $ 4 $ 5 $ Cummulative Cummulative Cash Flows cashflows Cash Flows cashflows -315,000$ -315,000 $ -315,000 $ -315,000 173,000 $ - 142,000 $ 145,000 $ - 170,000 142,000 $0 $ 170,000 $ 0 122,000 $ 122,000 $ 117,000 $ 117,000 111,000 $ 233,000 $ 82,000 $ 199,000 35,000 $ 268,000$ 69,000$ 268,000 Cash Payback Period Plant Expansion 2 years Retail Store Expansion 2 years

ДА 1 1a) 2 Year Plant Expansion Retail store expansion 40 Cash Flows - 315000 173000 142000 122000 111000 35000 Cummulative cashflows Cash Flows =+B4 -315000 =+C4+B5 145000 =+C5+B6 170000 =+C6+B7 117000 =+C7+B8 82000 =+C8+B9 69000 Cummulative cashflows =+D4 =+D5+E4 =+E5+D6 =+E6+D7 =+E7+D8 =+E8+D9 Cash Payback Period Plant Expansion 2 years Retail Store Expansion 2 years Ston

C D E F 15 1b Plant Expansion Retail store expansion Pv factor@12% Cash flows Present value Cash flows Present value 0.893 $ 173,000 $ 154,489 $ 145,000 $ 129,485 0.797 $ 142,000 $ 113,174 $ 170,000 $ 135,490 0.712 $ 122,000 $ 86,864 $ 117,000 $ 83,304 0.636 $ 111,000 $ 70,596$ 82,000 $ 52,152 0.567 $ 35,000 $ 19,845 $ 69,000$ 39,123 Total present value of net cash flow $ 444,968 $ 439,554 26 Total present value of net cash flow 27 Less amount to be invested 28 Net present value Retail Store Plant Expansion Expansion $ 444,968 $ 439,554 -315,000 $ -315,000 129,968 $ 124,554

15 1b) Year Pv factor@12% 0.893 0.797 0.712 0.636 0.567 Total present value of net cash flow Plant Expansion Retail store expansion Cash flows Present value Cash flows Present value 173000 =+B18*C18 145000 =+B18*E18 142000 =+B19*C19 170000 =+B19*E19 122000 =+B20*C20 117000 =+20*E20 111000 =+B21*C21 82000 =+B21*E21 35000 =+B22*C22 69000 =+B22*E22 =SUM(D18:022) | =SUM(F18:F22) Plant Expansion Retail Store Expansion =+F23 -315000 26 Total present value of net cash flow 27 Less amount to be invested 28 Net present value =+D23 - 315000 =+B26+B27 =+C26+C27