Cash Payback Period, Net Present Value Method, and Analysis GWH Publications Inc. is considering two new magazine products. The estimated net cash flows from each product are as follows: Year Primitive Camping Lakeside Fishing 1 $112,000   $93,000   2 91,000   110,000   3 79,000   75,000   4 71,000   53,000   5 23,000   45,000   Total $376,000   $376,000     Present Value of $1 at Compound Interest

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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Cash Payback Period, Net Present Value Method, and Analysis

GWH Publications Inc. is considering two new magazine products. The estimated net cash flows from each product are as follows:

Year Primitive Camping Lakeside Fishing
1 $112,000   $93,000  
2 91,000   110,000  
3 79,000   75,000  
4 71,000   53,000  
5 23,000   45,000  
Total $376,000   $376,000  

 

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

 

Each product requires an investment of $203,000. A rate of 10% has been selected for the net present value analysis.

Required:

1a.  Compute the cash payback period for each project.

  Cash Payback Period
Primitive Camping
 
Lakeside Fishing
 

 

1b.  Compute the net present value. Use the present value of $1 table presented above. If required, use the minus sign to indicate a negative net present value.

  Primitive Camping Lakeside Fishing
Present value of net cash flow total $fill in the blank 3   $fill in the blank 4  
Amount to be invested fill in the blank 5   fill in the blank 6  
Net present value $fill in the blank 7   $fill in the blank 8  
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