Cash payback period, net present value method and analysis At Home Publications Inc. is considering two new magazine products. The estimated net cash flows from each product are as follows: Year Home &Garden Music Beat 1 150,000 125,000 2 120,000 145,000 3 105,000 100,000 4 84,000 70,000 5 41,000 60,000 Total $500,000 $500,000 Each product requires an investment of $270,000.A rate of 10% has been selected for the net present value analysis. Instructions: 1. Compute the following for each product: a. Cash payback period. b. The net present value. Use the present value of $1 table appearing in this chapter. 2. Prepare a brief report advising management on the relative merits of each of the two products.
Cash payback period, net present value method and analysis
At Home Publications Inc. is considering two new magazine products. The estimated net cash flows from each product are as follows:
|
Year
|
Home &Garden
|
Music Beat
|
|
1
|
150,000
|
125,000
|
|
2
|
120,000
|
145,000
|
|
3
|
105,000
|
100,000
|
|
4
|
84,000
|
70,000
|
|
5
|
41,000
|
60,000
|
|
Total
|
$500,000
|
$500,000
|
Each product requires an investment of $270,000.A rate of 10% has been selected for the net present value analysis.
Instructions:
1. Compute the following for each product:
a. Cash payback period.
b. The net present value. Use the present value of $1 table appearing in this chapter.
2. Prepare a brief report advising management on the relative merits of each of the two products.
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