Elite Apparel Inc. is considering two investment projects. The estimated net cas

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 $100,000 81,000 70,000 64,000 20,000 $335,000 $83,000 98,000 67,000 47,000 40,000 $335,000 2 4 Total Each project requires an investment of $181,000. A rate of 12% has been selected for the net present value analysis Present Value of $1 at Compound Interest 10% 12% 20% 0.833 0.694 0.579 0.572 0.482 0.747 0.621 0.567 0.497 0.402 0.705 0.564 0.507 0.432 0.335 0.279 0.627 0.467 0.404 .327 0.233 0.592 0.424 0.361 0.2840.194 0.558 0.386 0.322 0.247 0.162 15% 6%o 0.943 0.909 0.893 0.870 0.890 0.826 0.797 0.756 0.840 0.751 0.712 0.658 0.792 0.683 0.636 Year 2 4 0.665 0.513 0.452 0.376 10 Required:

Explanation / Answer

1a) Calculation of Cash Payback Period for Plant Expansion (Amts in $)

As it can be seen in the above table that at the end of 2 years the total cash inflows from the project is $181,000 (i.e. equal to the investment amount).

Cash Payback Period for Plant Expansion = 2 years

Calculation of Cash Payback Period for Retail Store Expansion (Amts in $)

As it can be seen in the above table that at the end of 2 years the total cash inflows from the project is $181,000 (i.e. equal to the investment amount).

Cash Payback Period for Retail Store Expansion = 2 years

1b) Calculation of Net Present Value of Plant Expansion (Amts in $)

Calculation of Net Present Value of Retail Store Expansion (Amts in $)

2) Because of the timing of the receipt of the net cash flows, the Plant Expansion offers a higher net present value.

Year Annual Cash Flows Accumulated Cash Flows 1 100,000 100,000 2 81,000 181,000 3 70,000 251,000 4 64,000 315,000 5 20,000 335,000

Related Questions

Navigate

• Browse (All)
• Browse E
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.