FINANCIAL ACCOUNTING
FINANCIAL ACCOUNTING
10th Edition
ISBN: 9781259964947
Author: Libby
Publisher: MCG
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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:

Year

Plant Expansion

Retail Store Expansion

1

$163,000

 

$136,000

 

2

133,000

 

160,000

 

3

115,000

 

110,000

 

4

104,000

 

77,000

 

5

33,000

 

65,000

 

Total

$548,000

 

$548,000

 

 

Each project requires an investment of $296,000. A rate of 6% 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

 

 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

Total present value of net cash flow

$

$

Less amount to be invested

   

Net present value

$

$

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