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Year PR 12-2B Cash payback period, net present value method, and analysis Obj. 2,3 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: Sound Cellar Pro Gamer 1 $ 65,000 $ 70,000 2 60,000 55,000 3 25,000 35,000 4 25,000 30,000 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. 5 Instructions 1. Compute the following for each product: a. Cash payback period. b. The net present value. Use the present value table appearing in Exhibit 2 of this chapter. A B C D E F G H 1 J K L M N 1 Problem 26(12)-2B 2. Name: 3 4 1. a. 5 Initial investment: 6 7 Sound Cellar Pro Gamer 8 Net Cash Cumulative Net Net Cash Cumulative Net 9 Flow Cash Flows Flow Cash Flows 10 Year 1 11 Year 2 12 Year 3 13 Year 4 14 Year 5 15 16 The Sound Cellar magazine achieves payback in Year 2 18 The Pro Gamer magazine achieves payback in 19 20 magazine is recommended, based on the cash payback period. 21 22 23 b. 24 Net Present Value Analysis 25 Present Value of 26 Present Net Cash Flow Net Cash Flow 27 Value of Sound Pre Sound Pro 28 $1 at 10% Cellar Gamer Cellar Gamer 29 Year 1 30 Year 2 31 Year 3 32 Year 4 33 Year 5 34 Total 35 Amount to be invested 36 Net present value 37 38 magazine is recommended, based on its higher net present value. 39