11-16

NPV and IRR
John’s Publishing Company, a new service that writes term papers for college students,
provides 11-page term papers from a list of more than 500 topics. Each paper will cost $7.50 and is written by a graduate in the topic area. John’s will pay $20,000 for the rights to all of the manuscripts. In addition, each author will receive $0.50 in royalties for every paper sold. Marketing expenses are estimated to be a total of $20,000 divided equally between Years 1 and 2, and John’s cost of capital is 11 percent. Sales are expected as follows:
YEAR VOLUME
1 10,000 2 7,000 3 3,000
a. What is the payback period for this investment? Its NPV? Its IRR? b. What are the ethical implications of this investment?

what is the answer of this ? badly needed

answer

plz

To calculate the payback period, NPV, and IRR for this investment, we need to consider the cash inflows and outflows for each year.

First, let's calculate the cash inflows for each year:

For Year 1:
Volume = 10,000
Revenue per paper = $7.50
Royalties per paper = $0.50
Total revenue = (Volume * Revenue per paper) + (Volume * Royalties per paper)
Total revenue = (10,000 * $7.50) + (10,000 * $0.50)

For Year 2:
Volume = 7,000
Total revenue = (Volume * Revenue per paper) + (Volume * Royalties per paper)
Total revenue = (7,000 * $7.50) + (7,000 * $0.50)

For Year 3:
Volume = 3,000
Total revenue = (Volume * Revenue per paper) + (Volume * Royalties per paper)
Total revenue = (3,000 * $7.50) + (3,000 * $0.50)

Next, let's calculate the cash outflows:

Rights to all manuscripts cost = $20,000
Marketing expenses per year = $20,000 / 2 (divided equally between Year 1 and Year 2)

Now, we can calculate the payback period. The payback period is the time it takes for the initial investment to be recovered.

To find the payback period, we subtract the cash outflows from the cash inflows until the cumulative cash flow is zero or positive. The year at which this occurs is the payback period.

Let's calculate the cumulative cash flow for each year:

Year 0 cash flow: -$20,000
Year 1 cash flow: Total revenue for Year 1 - Marketing expenses for Year 1 - Rights cost
Year 2 cash flow: Total revenue for Year 2 - Marketing expenses for Year 2
Year 3 cash flow: Total revenue for Year 3

Continue subtracting the cash outflows from the cash inflows until the cumulative cash flow is zero or positive.

To calculate NPV (Net Present Value), we discount each cash flow to its present value using the cost of capital.

NPV = Sum of [Cash flow / (1+Cost of capital)^Year]

To calculate IRR (Internal Rate of Return), we find the discount rate that makes the NPV zero. It represents the annualized return of the investment.

Now, let's perform the calculations:

a. Payback Period:
Calculate the cumulative cash flow for each year until it becomes zero or positive.

b. NPV:
Discount each cash flow to its present value and sum them up.

c. IRR:
Find the discount rate that makes the NPV zero.

For the ethical implications of this investment, we need further details on the specific aspects you would like to explore. Ethical implications may involve issues such as academic integrity, plagiarism, intellectual property rights, and potential exploitation of students.