Question

Elite Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:

Answer 1

Answer:

the cash payback period for both projects is 2 years

NPV for plant expansion = $304,707.24

NPV for  Retail Store Expansion = $309,744.41

retail store expansion has the greater NPV

Explanation:

Here is the full question for question 2

. Because of the timing of the receipt of the net cash flows, the

plant expansion

retail store expansion

has the higher net present value

Payback calculates the amount of time it takes to recover the amount invested in a project from it cumulative cash flows

Please check the attached image for a calculation of how the payback period was calculated.

Net present value is the present value of after tax cash flows from an investment less the amount invested.  

NPV can be calculated using a financial calculator

for Plant Expansion

Cash flow in year 0 = -900,000

Cash flow in year 1 = 450,000

Cash flow in year 2 = 450,000

Cash flow in year 3 = 340,000

Cash flow in year 4 = 280,000

Cash flow in year 5 = 180,000

I = 15%

NPV = $304,707.24

For retail store expansion

Cash flow in year 0 = -900,000

Cash flow in year 1 = 500,000

Cash flow in year 2 = 400,000

Cash flow in year 3 = 350,000

Cash flow in year 4 = 250,000

Cash flow in year 5 = 200,000

I = 15%

NPV = $309,744.41

retail store expansion has the greater NPV

To find the NPV using a financial calculator:

1. Input the cash flow values by pressing the CF button. After inputting the value, press enter and the arrow facing a downward direction.

2. after inputting all the cash flows, press the NPV button, input the value for I, press enter and the arrow facing a downward direction.  

3. Press compute