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.