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 $114,000 $95,000 2 93,000 112,000 3 80,000 77,000 4 73,000 54,000 5 23,000 45,000 Total $383,000 $383,000 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 $207,000. A rate of 6% has been selected for the net present value analysis. 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 $ $ Amount to be invested Net present value $ $ 2. All of the following are true regarding the two products except: If funds are unlimited, only the Primitive Camping product is acceptable to pursue. Both products offer the same total net cash flows. Because of the timing of the receipt of the net cash flows, the Primitive Camping magazine offers a higher net present value. Both products offer the same cash payback period.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 22E

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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	$114,000		$95,000
2	93,000		112,000
3	80,000		77,000
4	73,000		54,000
5	23,000		45,000
Total	$383,000		$383,000

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 $207,000. A rate of 6% has been selected for the net present value analysis.

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	$	$
Amount to be invested
Net present value	$	$

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

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

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