Cash Payback Period, Net Present Value Method, and Analysis for a Service Company Social Circle Publications Inc. is considering two new magazine products. The estimated net cash flows from each...

Cash Payback Period, Net Present Value Method, and Analysis for a Service Company
Social Circle Publications Inc. is considering two new magazine products. The estimated net cash flows
from each product are as follows:
Year Sound Cellar Pro Gamer
1 $ 65,000 $ 70,000
2 60,000 55,000
3 25,000 35,000
4 25,000 30,000
5 45,000 30,000
Total $220,000 $220,000
Each product requires an investment of $125,000. A rate of 10% has been selected for the net present
value analysis.
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
Required:
3. PR.11-05B
1a. Compute the cash payback period for each product.
Cash Payback Period
Sound Cellar
Pro Gamer
1b. Compute the net present value. Use the present value of $1 table above. If required, round to the
nearest dollar.
Sound Cellar Pro Gamer
Present value of net cash flow total $ $
Amount to be invested $ $
Net present value $ $
2. Because of the timing of the receipt of the net cash flows, the
magazine expansion offers a higher