Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:YearPlantExpansionRetail StoreExpansion1$127,000 $106,000 2104,000 125,000 390,000 85,000 481,000 60,000 525,000 51,000 Total$427,000 $427,000 Each project requires an investment of $231,000. A rate of 10% has been selected for the net present value analysis.Present Value of $1 at Compound InterestYear6%10%12%15%20%10.9430.9090.8930.8700.83320.8900.8260.7970.7560.69430.8400.7510.7120.6580.57940.7920.6830.6360.5720.48250.7470.6210.5670.4970.40260.7050.5640.5070.4320.33570.6650.5130.4520.3760.27980.6270.4670.4040.3270.23390.5920.4240.3610.2840.194100.5580.3860.3220.2470.162Required:1a. Compute the cash payback period for each product. Cash Payback PeriodPlant Expansion Retail Store Expansion 1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar. Plant ExpansionRetail Store ExpansionPresent value of net cash flow total$fill in the blank 3$fill in the blank 4Less amount to be invested$fill in the blank 5$fill in the blank 6Net present value$fill in the blank 7$fill in the blank 82. Because of the timing of the receipt of the net cash flows, the offers a higher .

PAYBACK PERIOD Payback period is the period in which money invested in capital asset is recovered…

Answered: Elite Apparel Inc. is considering two…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section10.A: Mutually Exclusive Investments Having Unequal Lives

Problem 4P

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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	$127,000		$106,000
2	104,000		125,000
3	90,000		85,000
4	81,000		60,000
5	25,000		51,000
Total	$427,000		$427,000

Each project requires an investment of $231,000. A rate of 10% 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
Retail Store Expansion

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 3	$fill in the blank 4
Less amount to be invested	$fill 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

offers a higher

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