Cash Payback Period, Net Present Value Method, and Analysis

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

Year	Primitive Camping		Lakeside Fishing
1	$118,000		$99,000
2	97,000		116,000
3	84,000		80,000
4	76,000		56,000
5	23,000		47,000
Total	$398,000		$398,000

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 $215,000. A rate of 10% has been selected for the net present value analysis.

Required:

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

	Cash Payback Period
Primitive Camping
Lakeside Fishing

1b. 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.

	Primitive Camping		Lakeside Fishing
Present value of net cash flow total	$________		$________
Amount to be invested	_________		_________
Net present value	$________		$________

2. All of the following are true regarding the two products except:

1. If funds are unlimited, only the Primitive Camping product is acceptable to pursue.
2. Both products offer the same total net cash flows.
3. Because of the timing of the receipt of the net cash flows, the Primitive Camping magazine offers a higher net present value.
4. Both products offer the same cash payback period.