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$148,000$124,0002121,000145,0003105,000100,000495,00070,000529,00059,000Total$498,000$498,000

Each project requires an investment of $269,000. A rate of 10% has been selected for the net present value analysis.

Year6%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 project.

ProjectCash 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.

Line Item DescriptionPlant ExpansionRetail Store ExpansionTotal present value of net cash flow$fill in the blank 3$fill in the blank 4Less amount to be investedfill in the blank 5fill in the blank 6Net present value$fill in the blank 7$fill in the blank 8

Because of the timing of the receipt of the net cash flows, the

plant expansionretail or tore expansion

offers a higher

net present value or net cash flow

.