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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