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

 

Plant

Retail Store

Year

Expansion

Expansion

1

$ 280,000

$ 260,000

2

260,000

260,000

3

230,000

250,000

4

260,000

250,000

5

270,000

280,000

Total

$1,300,000

$1,300,000

Each project requires an investment of $770,000. A rate of 15% has been selected for the net present value analysis.

Instructions

1. Compute the following for each project:

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.