5 Capital investments
Cash payback period, net present value method, and analysis
Apparel Inc. is considering two investment projects. The estimated net cash flows from each project are as follows:
Each project requires an investment of $480,000. A rate of 15% 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 
1. A. Compute the cash payback period for each project.

Cash payback period 
Plant Expansion: 1, 2,3.4, or 5yrs ? 

Retail Store Expansion: 1,2,3,4, 5yrs? 
Answer:
Plan expansion Payback Period is in 3 Years
Retail Store Expansion Payback Period is in 3 Years
1. B. Compute the net present value. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value.


Plant Expansion 

Retail Store Expansion 
Present value of net cash flow total: 
$ 
488,100 
$ 
497,230 
Amount to be invested: 

$480,000 

$ 480,000 
Net present value: 
$ 
8,100 
$ 
17,230 
Answer:
Net Present Value calculation of Plant Expansion
Net Present Value calculation of Retail Store Expansion
2. Prepare a brief report advising management on the relative merits of each project. The input in the box below will not be graded, but may be reviewed and considered by others.