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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 Expansion$1$$$450,000$$$500,0002450,000400,0003340,000350,0004280,000250,0005180,000200,000$Total$$1,700,000$$$1,700,000$

Each project requires an investment of $$900,000.$ A rate of $15\%$ has been selected for the net present value analysis.

Present Value of $$1$ at Compound InterestYear$6\%10\%12\%15\%20\%10\mathrm{.}9430\mathrm{.}9090\mathrm{.}8930\mathrm{.}8700\mathrm{.}83320\mathrm{.}8900\mathrm{.}8260\mathrm{.}7970\mathrm{.}7560\mathrm{.}69430\mathrm{.}8400\mathrm{.}7510\mathrm{.}7120\mathrm{.}6580\mathrm{.}57940\mathrm{.}7920\mathrm{.}6830\mathrm{.}6360\mathrm{.}5720\mathrm{.}48250\mathrm{.}7470\mathrm{.}6210\mathrm{.}5670\mathrm{.}4970\mathrm{.}40260\mathrm{.}7050\mathrm{.}5640\mathrm{.}5070\mathrm{.}4320\mathrm{.}33570\mathrm{.}6650\mathrm{.}5130\mathrm{.}4520\mathrm{.}3760\mathrm{.}27980\mathrm{.}6270\mathrm{.}4670\mathrm{.}4040\mathrm{.}3270\mathrm{.}23390\mathrm{.}5920\mathrm{.}4240\mathrm{.}3610\mathrm{.}2840\mathrm{.}194100\mathrm{.}5580\mathrm{.}3860\mathrm{.}3220\mathrm{.}2470\mathrm{.}162$

Required:

$1$a$.$Compute the cash payback period for each project.

$$Cash Payback PeriodPlant Expansion

$1$ year$2$ years$3$ years$4$ years$5$ years

Retail Store Expansion

$1$ year$2$ years$3$ years$4$ years$5$ years

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

$$Plant ExpansionRetail Store ExpansionTotal present value of net cash flow$fill in the blank $3$$fill in the blank $4$Less amount to be investedfill in the blank $5$fill in the blank $6$Net 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, the

plant expansionretail store expansion

offers a higher

net present valuenet cash flow

$.$