FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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Cash Payback Period,
Elite Apparel Inc. is considering two investment projects. The estimated net
| Year | Plant Expansion |
Retail Store Expansion |
||
| 1 | $175,000 | $146,000 | ||
| 2 | 143,000 | 172,000 | ||
| 3 | 123,000 | 118,000 | ||
| 4 | 112,000 | 82,000 | ||
| 5 | 35,000 | 70,000 | ||
| Total | $588,000 | $588,000 |
Each project requires an investment of $318,000. A rate of 20% 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 product.
| Cash Payback Period | |
| Plant Expansion |
fill in the blank years
|
| Retail Store Expansion |
fill in the blank 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 | $fill in the blank | $fill in the blank |
| Less amount to be invested | $fill in the blank | $fill in the blank |
| Net present value | $fill in the blank | $fill in the blank |
2. Because of the timing of the receipt of the net cash flows, the fill in the blank offers a higher fill in the blank.
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