Southern california publishing company is trying to decide whether or not to revise its popular textbook, financial psychoanalysis made simple. the company has estimated that the revision will cost $90,000. cash flows from increased sales will be $21,600 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.

If the company requires a return of 10 percent for such an investment, calculate the present value of the project.

The present value of the project is $72349.51.

Since we consider only incremental cash flows for a project, we consider $21,600 for year one and calculate a 4% increase for each of the additional years.

We then calculate the Present Value Interest Factor (PVIF) at 10% for four years using the formula :

PVIF = 1 / [(1+r)^n]

Next, we find the product of the respective cash flows and PVIF for each year.

Finally, we find the total of the discounted cash flows for the four years to find the Present Value of the project.

The reciprocal of the function to its cost

Explanation:

Value is defined as "the reciprocal of the function to its cost."

The above statement implies that the value of a product is based on the relationship between its functionalities and the cost at which it is purchased. That is, to determine the value of a product, its functionalities must commensurate, meets, or correspond in proportion to the cost of getting the product.