Answer:
Plant Expansion
Cash payback period = 2 years
NPV = $304,707.24
Retail Store Expansion
Cash payback period = 2 years
NPV = $309,744.42
Step-by-step explanation:
Cash payback period measures how long it takes for the amount invested in a project to be recovered from the cumulative cash flows.
Cash payback for the Plant Expansion
Amount invested = $-900,000
Amount recovered in the first year = $-900,000 + $450,000 = $-450,000
Amount recovered in the second year = $-450,000 + $450,000 = 0
The amount invested in the project is recovered In the second year. So, the cash payback period is 2 years.
Cash payback for the Retail Store Expansion
Amount invested = $-900,000
Amount recovered in the first year = $-900,000 + $500,000 = $-400,000
Amount recovered in the second year = $-400,000 + $400,000 = 0
The amount invested in the project is recovered In the second year. So, the cash payback period is 2 years.
The 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:
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
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 = $309,744.42
To find the NPV using a financial calacutor:
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
I hope my answer helps you