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: a. What is the payback period for this investment? Its NPV? Its IRR? b. What are the ethical implications of this investment?
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:
a. What is the payback period for this investment? Its NPV? Its IRR?
b. What are the ethical implications of this investment?
![YEAR
VOLUME
10,000
2
7,000
3
3,000](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F6d7c782e-fbcd-44fd-a2e7-04e69b52b87a%2Ff71506d4-02a5-406e-8cd2-4766e9b75fba%2Fbuc5x1_processed.jpeg&w=3840&q=75)
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