Question

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

the cash payback period for each product.

	Cash Payback Period
Sound Cellar	2 years
Pro Gamer	2 years

1b. Compute the net present value for each product. Use the present value of $1 table above. If required, round to the nearest dollar.

	Sound Cellar	Pro Gamer
Total present value of net cash flow	$	$
Amount to be invested
Net present value	$	$