Problem:
Southern California Publishing Company is trying to decide whether to revise its popular textbook. The company has estimated that the revision will cost $90,000. Cash flows from increased sales will be $21,300 the first year. These cash flows will increase by 4 percent per year. The book will go out of print five years from now. Assume that the initial cost is paid now and revenues are received at the end of each year.
Required:
Question: If the company requires a return of 10 percent for such an investment, calculate the present value of the project.
Note: Show all workings.