Be You 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
|
$170,000
|
$200,000
|
|
2
|
170,000
|
160,000
|
|
3
|
140,000
|
120,000
|
|
4
|
110,000
|
120,000
|
|
5
|
120,000
|
110,000
|
|
Total
|
$710,000
|
$710,000
|
Each project requires an investment of $480,000. A rate of 15% has been selected for the net present value analysis.
Instructions
1. Compute the following for each product:
a. Cash payback period.
b. The net present value. Use the present value of $1 table appearing in this chapter.
2. Prepare a brief report advising management on the relative merits of each project.