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	$101,000		$85,000
2	83,000		99,000
3	71,000		68,000
4	65,000		48,000
5	20,000		40,000
Total	$340,000		$340,000

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Each product requires an investment of $184,000. A rate of 15% has been selected for the net present value analysis.

Instructions:

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

	Cash Payback Period
Home & Garden	years
Music Beat	years

1b. Compute the net present value. Use the present value of $1 table above. If required, use the minus sign to indicate a negative net present value.

	Home & Garden		Music Beat
Present value of net cash flow total	$		$
Amount to be invested
Net present value	$		$

Net Present Value Method, Present Value Index, and Analysis

United Bankshores Inc. wishes to evaluate three capital investment projects by using the net present value method. Relevant data related to the projects are summarized as follows:

		Branch Office Expansion		Computer System Upgrade		Install Internet Bill-Pay
Amount to be invested		$550,199		$380,832		$225,472
Annual net cash flows:
	Year 1	259,000		186,000		119,000
	Year 2	241,000		167,000		82,000
	Year 3	220,000		149,000		60,000

Present Value of $1 at Compound Interest
Year	6%	10%	12%	15%	20%
1	0.943	0.909	0.893	0.870	0.833
2	0.890	0.826	0.797	0.756	0.694
3	0.840	0.751	0.712	0.658	0.579
4	0.792	0.683	0.636	0.572	0.482
5	0.747	0.621	0.567	0.497	0.402
6	0.705	0.564	0.507	0.432	0.335
7	0.665	0.513	0.452	0.376	0.279
8	0.627	0.467	0.404	0.327	0.233
9	0.592	0.424	0.361	0.284	0.194
10	0.558	0.386	0.322	0.247	0.162

Instructions:

1. Assuming that the desired rate of return is 10%, prepare a net present value analysis for each project. Use the present value of $1 table presented above in your computations. If the net present value is negative, enter a negative amount.

	Branch Office		Computer System		Internet Bill-Pay
Present value of net cash flow total	$		$		$
Amount to be invested
Net present value	$		$		$

2. Determine a present value index for each proposal. Round your answers to two decimal places.

	Present Value Index (Rounded)
Branch Office
Computer System
Internet Bill-Pay