Cash Payback Period, Net Present Value Method, and Analysis McMorris Publications Inc. is considering two new magazine products. The estimated net cash flows from each product are as follows: Year Canadian Cycling European Hiking 1 $129,000 $108,000 2 105,000 126,000 3 91,000 87,000 4 82,000 61,000 5 26,000 51,000 Total $433,000 $433,000   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 $234,000. A rate of 15% has been selected for the net present value analysis. Required: 1a.  Compute the cash payback period for each project.   Cash Payback Period Canadian Cycling (1,2,3,4 or 5 years) European Hiking (1,2,3,4 or 5 years)   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.   Canadian Cycling European Hiking Present value of net cash flow total $_________ $_________ Amount to be invested _________ __________ Net present value $_________ $_________   2.  All of the following are true regarding the two products except: _______ a. If funds are unlimited, only the Canadian Cycling product is acceptable to pursue. b. Both products offer the same total net cash flows. c. Because of the timing of the receipt of the net cash flows, the Canadian Cycling magazine offers a higher net present value. d. Both products offer the same cash payback period.

FINANCIAL ACCOUNTING
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ISBN:9781259964947
Author:Libby
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Chapter1: Financial Statements And Business Decisions
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Cash Payback Period, Net Present Value Method, and Analysis

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

Year Canadian Cycling European Hiking
1 $129,000 $108,000
2 105,000 126,000
3 91,000 87,000
4 82,000 61,000
5 26,000 51,000
Total $433,000 $433,000

 

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 $234,000. A rate of 15% has been selected for the net present value analysis.

Required:

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

  Cash Payback Period
Canadian Cycling (1,2,3,4 or 5 years)
European Hiking (1,2,3,4 or 5 years)

 

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.

  Canadian Cycling European Hiking
Present value of net cash flow total $_________ $_________
Amount to be invested _________ __________
Net present value $_________ $_________

 

2.  All of the following are true regarding the two products except: _______

a. If funds are unlimited, only the Canadian Cycling product is acceptable to pursue.

b. Both products offer the same total net cash flows.

c. Because of the timing of the receipt of the net cash flows, the Canadian Cycling magazine offers a higher net present value.

d. Both products offer the same cash payback period.

 

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