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:

YearPlant ExpansionRetail Store Expansion1$135,000 $113,000 2110,000 132,000 395,000 91,000 486,000 63,000 527,000 54,000 Total$453,000 $453,000

Each project requires an investment of $245,000. A rate of 12% has been selected for the net present value analysis.

Present Value of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83320.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.48250.7470.6210.5670.4970.40260.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.23390.5920.4240.3610.2840.194100.5580.3860.3220.2470.162

Required:

1a. Compute the cash payback period for each product.

Cash Payback PeriodPlant Expansion1 year2 years3 years4 years5 yearsRetail Store Expansion1 year2 years3 years4 years5 years

1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar.

Plant ExpansionRetail Store ExpansionPresent value of net cash flow total$fill in the blank 3$fill in the blank 4Less amount to be invested$fill in the blank 5$fill in the blank 6Net present value$fill in the blank 7$fill in the blank 8

2. Because of the timing of the receipt of the net cash flows, theoffers a higher .

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