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 $_ $_____

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter12: Capital Investment Analysis

Section: Chapter Questions

Problem 2PB

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Cash Payback Period, Net Present Value Method, and Analysis

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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	$_________	$_________

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