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.