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	$108,000		$91,000
2	89,000		106,000
3	76,000		73,000
4	69,000		51,000
5	22,000		43,000
Total	$364,000		$364,000

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 $197,000. A rate of 6% has been selected for the net present value analysis.

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

	Cash Payback Period
Canadian Cycling	______years
European Hiking	______years

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.

	Canadian Cycling		European Hiking
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 Canadian Cycling 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 Canadian Cycling magazine offers a higher net present value.
4. Both products offer the same cash payback period.

Financial Leverage

Microsoft Corporation (MSFT) reported the following data (in millions) for a recent year:

Sales		$ 93,580
Operating income		12,193
Average total assets		174,304
Average stockholders equity		84,934

1. Compute the return on total assets. Round to one decimal place. _________ %

2. Compute the return on stockholders equity. Round to one decimal place. _________ %

3. Compute the profit margin, asset turnover, and financial leverage metrics using the expanded DuPont formula. Round profit margin, asset turnover, and financial leverage to two decimal places. Round return on stockholders equity to one decimal place.

Profit margin		_______%
Asset turnover		_______
Financial leverage		_______
Return on stockholders equity		_______%

4. Apple Inc. has a financial leverage metric of 2.26. Does Apple or Microsoft use more financial leverage in its operations?

a. Apple

b. Microsoft