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Sunday, February 20, 2011

Discounted Cash Flow Valuation: Growing Annuity

Solution is available here for U$10

Corporate Finance, 9/e
Stephen A. Ross, Massachussetts Institute of Technology
Randolph W. Westerfield, University of Southern California
Jeffrey F. Jaffe, University of Pennsylvania
ISBN 978-0073105901

Chapter 4 Discounted Cash Flow Valuation

33. Growing Annuity. 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 $65,000. Cash flows from increased sales will be $18,000 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 an 11 percent return for such investment, should it undertake the revision?

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