Cash payback period, net present value method, and analysis 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. Instructions 1. Compute the following for each product: a. Cash payback period. b. The net present value. Use the present value of \$1table appearing in this chapter (Exhibit 2). 2. Prepare a brief report advising management on the relative merits of each of the two products.

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Accounting

27th Edition
WARREN + 5 others
Publisher: Cengage Learning,
ISBN: 9781337272094

Solutions

Chapter
Section
Chapter 26, Problem 26.2BPR
Textbook Problem

Cash payback period, net present value method, and analysis 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.Instructions 1. Compute the following for each product: a. Cash payback period. b. The net present value. Use the present value of \$1table appearing in this chapter (Exhibit 2). 2. Prepare a brief report advising management on the relative merits of each of the two products.

Expert Solution

1. a.

To determine

Cash payback method:

Cash payback period is the expected time period which is required to recover the cost of investment. It is one of the capital investment method used by the management to evaluate the long-term investment (fixed assets) of the business.

Net present value method:

Net present value method is the method which is used to compare the initial cash outflow of investment with the present value of its cash inflows. In the net present value, the interest rate is desired by the business based on the net income from the investment, and it is also called as the discounted cash flow method.

To determine: The cash payback period for the equipment.

Explanation of Solution

The cash payback period for the given data is as follows:

 SCP Incorporation Year Sound cellar Pro Gamer Net cash flow (\$) Cumulative net cash flows (\$) Net cash flow Â (\$) Cumulative net cash flows (\$) 1 Â Â Â Â Â Â Â  65,00...
Expert Solution

b.

To determine

To calculate: The net present value of the investment of SCP Incorporation.

Expert Solution

2.

To determine

To prepare: A brief report for advising management on the relative merits of each project.

Want to see the full answer?

Check out a sample textbook solution.See solution

Want to see this answer and more?

Bartleby provides explanations to thousands of textbook problems written by our experts, many with advanced degrees!

See solution

Find more solutions based on key concepts
Show solutions
What are the two main causes of market failure? Give an example of each.

Brief Principles of Macroeconomics (MindTap Course List)

What are the major elements of Taylors scientific management?

Foundations of Business (MindTap Course List)

Should an economic model describe reality exactly?

Essentials of Economics (MindTap Course List)

Why must employers maintain employees individual earnings records?

College Accounting (Book Only): A Career Approach

PREFERRED STOCK RATE OF RETURN What will be the nominal rate of return on a perpetual preferred stock with a 10...

Fundamentals of Financial Management, Concise Edition (with Thomson ONE - Business School Edition, 1 term (6 months) Printed Access Card) (MindTap Course List)