Cash Payback Period, Net Present Value Method, and Analysis for a Service CompanySocial Circle Publications Inc. is considering two new magazine products. The estimated net cash flowsfrom each product are as follows:Year Sound Cellar Pro Gamer1 $ 65,000 $ 70,0002 60,000 55,0003 25,000 35,0004 25,000 30,0005 45,000 30,000Total $220,000 $220,000Each product requires an investment of $125,000. A rate of 10% has been selected for the net presentvalue analysis.Present Value of $1 at Compound InterestYear 6% 10% 12% 15% 20%1 0.943 0.909 0.893 0.870 0.8332 0.890 0.826 0.797 0.756 0.6943 0.840 0.751 0.712 0.658 0.5794 0.792 0.683 0.636 0.572 0.4825 0.747 0.621 0.567 0.497 0.4026 0.705 0.564 0.507 0.432 0.3357 0.665 0.513 0.452 0.376 0.2798 0.627 0.467 0.404 0.327 0.2339 0.592 0.424 0.361 0.284 0.19410 0.558 0.386 0.322 0.247 0.162Required:3. PR.11-05B1a. Compute the cash payback period for each product.Cash Payback PeriodSound CellarPro Gamer1b. Compute the net present value. Use the present value of $1 table above. If required, round to thenearest dollar.Sound Cellar Pro GamerPresent 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, themagazine expansion offers a higher
Cash Payback Period,
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
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