Cash Payback Period, Net Present Value Method, and Analysis Home Publications In

Question

Cash Payback Period, Net Present Value Method, and Analysis

Home Publications Inc. is considering two new magazine products. The estimated net cash flows from each product are as follows:

Each product requires an investment of $274,000. A rate of 20% has been selected for the net present value analysis.

Required:

1a. Compute the cash payback period for each product.

1b. Compute the net present value. Use the present value of $1 table above. If required, round to the nearest dollar.

Year Home & Garden Music Beat 1 $151,000 $126,000 2 123,000 148,000 3 106,000 101,000 4 96,000 71,000 5 31,000 61,000 Total $507,000 $507,000

Explanation / Answer

1a)

1b)

Compute the paybackperiod of Home and Green Year Cash Flows Payback period 0 -274000 1 151000 -123000 2 123000 0 3 106000 4 96000 5 31000 Payback period = 2 years Compute the payback period of Music Beat Year Cash Flows Payback period 0 -274000 1 126000 -148000 2 148000 0 3 101000 4 71000 5 61000 Payback period = 2 years

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