Question
The New York Times is considering introducing a new monthly magazine. The company anticipates that it will cost $ 20 million in initial costs to
The New York Times is considering introducing a new monthly magazine. The company anticipates that it will cost $ 20 million in initial costs to create the infrastructure needed to produce the magazine, and that it can depreciate this cost straight line over the next 10 years to a salvage value of $ 5 million. The Times expects to price the magazine at $ 2 an issue on the newsstands and it expects advertising revenues of $ 1.50 per issue sold; the printing and production costs are expected to be $ 1 per issue. The magazines contents will be produced by the existing staff of the paper, but the Times will have to increase its total annual payroll cost, which is currently $ 20 million, by 10%. The cost of capital for the New York Times is 9% and it can be used for this investment as well. (The marginal tax rate is 40%.) a. If the New York Times expects to sell 200,000 copies a month each month for the next 10 years, estimate the annual after-tax cash flow from this investment.
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