Question

Cash Payback Period, Net Present Value Method, and Analysis

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	$173,000		$145,000
2	142,000		170,000
3	122,000		117,000
4	111,000		82,000
5	35,000		69,000
Total	$583,000		$583,000

Each product requires an investment of $315,000. A rate of 10% 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.

	Canadian Cycling		European Hiking
Present value of net cash flow total	$		$
Amount to be invested
Net present value	$		$

Answer 1

Answer:-

Net Present Value of Canadian Cycling
	Net Cash Flows $ (a)	Present Value of 1 at 10% (b)	Present Value of cash flows (c=a*b) $
Year 1	173000	0.9091	157274
Year 2	142000	0.8264	117349
Year 3	122000	0.7513	91659
Year 4	111000	0.6830	75813
Year 5	35000	0.6209	21732
Totals	583000
Total present value of cash inflow (a)			463826
Total cash outflow (b)	315000	1	315000
Net Present Value $ (c=a-b)			148826
Net Present Value of European Hiking
	Machine B
	Net Cash Flows $ (a)	Present Value of 1 at 10% (b)	Present Value of cash flows (c=a*b) $
Year 1	145000	0.9091	131820
Year 2	170000	0.8264	140488
Year 3	117000	0.7513	87902
Year 4	82000	0.6830	56006
Year 5	69000	0.6209	42842
Totals	583000
Total present value of cash inflow (a)			459058
Total cash outflow (b)	315000	1	315000
Net Present Value $ (c=a-b)			144058