A publishing company is trying to decide whether to revise its popular textbook. The revision will cost $150,000. Cash flows from increased sales will be $4000 the first year. These cash flows will increase by 8% per year. The book will go out of print twenty years from now (the final sales will be at the end of year 20). Assume that initial cost is paid now, and revenues are received at the end of each year. If the publisher requires 10% rate of return for such an investment, should it undertake the revision?

Show how to find the answer without using the growing annuity formula.

You must not use PV0 = FVn/(1+r)^n more than 2 times.

You must use both of the following formulas to solve this question.

1. Present value of perpetuity with growth = C/(r-g)
2. PV0 = FVn/(1+r)^n