Question

1. 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	$120,000		$101,000
   2	99,000		118,000
   3	85,000		81,000
   4	77,000		57,000
   5	24,000		48,000
   Total	$405,000		$405,000

   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 $219,000. A rate of 12% has been selected for the net present value analysis.

   Required:

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

   	Cash Payback Period
   Canadian Cycling
   European Hiking

   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:

   1. If funds are unlimited, only the Canadian Cycling product is acceptable to pursue.
   2. Both products offer the same total net cash flows.
   3. Because of the timing of the receipt of the net cash flows, the Canadian Cycling magazine offers a higher net present value.
   4. Both products offer the same cash payback period.

Answer 1

Please upvote if the ans is helpful. Thanks.