Family Life Publications Inc. is considering two new magazine products. The estimated net cash flows from each product are as follows:
|
Year |
Home & Garden |
Today’s Teen |
|
1 |
$230,000 |
$160,000 |
|
2 |
210,000 |
280,000 |
|
3 |
190,000 |
200,000 |
|
4 |
50,000 |
40,000 |
|
5 |
40,000 |
40,000 |
|
Total |
$720,000 |
$720,000 |
Each product requires an investment of $440,000. A rate of 15% has been selected for the net present value analysis.
Instructions
1. Compute the following for each project:
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.