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 Retail Store Expansion Plant Expansion $153,000 126,000 $128,000 151,000 108,000 103,000 98,000 72,000 31,000 62,000 Total $516,000 $516,000

Answer 1

Payback Period Year 1a Plant Expansion Retail Store Expansion 153000 1 128000 151000 2. 126000 279000 279000 I,e 2 Years required to recovery of investment Thus Payback Period Retail Store Expansion Plant Expansion 2 Years 2 Years

1b Computation of Net present Value Plant Expansion Retail Store Expansion Particulars Total Present Value of Cash inflows( Working Note 1) Amount To be Invested 410446 406109 279000 279000 Net Present Value 131446 127109 Working Note 1 Plant Expansion Retail Store Expansion Present value annuity Present Value Year Present value Present annuity Factor@10% Value Factor@10% A B C*D A 1 153000 0.909 139077 128000 0.909 116352 104076 2 126000 0.826 151000 0.826 124726 81108 3 108000 0.751 103000 0.751 77353 72000 4. 98000 0.683 66934 0.683 49176 5 31000 0.621 19251 62000 0.621 38502 Inflows Inflows 410446 406109 1c Because of timing difference in cash flows, Plant Expansion offers higher cash inflows of $ 4337/- comapre to retail store expansion i e( 131446-127109)