Southern California Publishing Company is trying to decide whether to revise its

Question

Southern California Publishing Company is trying to decide whether to revise its popular textbook, Financial Psychoanalysis Made Simple. The company has estimated that the revision will cost $70,000. Cash flows from increased sales will be $21,500 the first year. These cash flows will increase by 3 percent per year. The book will go out of print four years from now. Assume that the initial cost is paid now and revenues are received at the end of each year. f the company requires a retum of 8 percent for such an investment, calculate the present value of the cash flows of the proj (Do noou places, e.g., 32.16.) calculations and round your answer to 2 decimal Present value

Explanation / Answer

Present value of inflows=cash inflow*Present value of discounting factor(rate%,time period)

=21500/1.08+22145/1.08^2+22809.35/1.08^3+23493.6305/1.08^4

which is equal to

=$74268.49(Approx).

Year Cash inflows 1 21500 2 (21500*1.03)=$22145 3 (22145*1.03)=22809.35 4 (22809.35*1.03)=23493.6305

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