Question

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?

Answer 1

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