Question

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	$151,000		$127,000
2	124,000		148,000
3	107,000		102,000
4	97,000		71,000
5	30,000		61,000
Total	$509,000		$509,000

Each project requires an investment of $275,000. 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	(1, 2, 3, 4, or 5 years)
Retail Store Expansion	(1, 2, 3, 4, or 5 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
Present value of net cash flow total	$	$
Less amount to be invested	$	$
Net present value	$	$

2. Because of the timing of the receipt of the net cash flows, the (plant expansion / retail store expansion) offers a higher (net present value / net cash flow).

Answer 1