Question

1. Hollow Truth Publishers is considering whether to launch a new e-magazine. The annual rate of return on a similar risk project is 8%, the cash flows occur semi-annually (at the end of the 6th and 12th month), and the publishing company requires a payback period of 2 years. The finance department has calculated that the required rate of return for all projects that it will consider is 14%. The costs of the project are: Advertising on various billboards and cable television stations $210,000 Hollow Truth’s accounting department set up charges $50,000 Production costs and employee bonuses $250,000 Last year’s purchase price for the e-magazine's offices $470,000 Potential rental income from the offices if rented to a 3rd party $200,000 TOTAL $1,180,000 Part A: What are the total relevant costs of the project?

          1.     Hollow Truth Publishers is considering whether to launch a new e-magazine. The annual rate of return on a similar risk project is 8%, the cash flows occur semi-annually (at the end of the 6th and 12th month), and the publishing company requires a payback period of 2 years. The finance department has calculated that the required rate of return for all projects that it will consider is 14%. The costs of the project are:
Advertising on various billboards and cable television stations
$210,000
Hollow Truth’s accounting department set up charges
$50,000
Production costs and employee bonuses
$250,000
Last year’s purchase price for the e-magazine's offices
$470,000
Potential rental income from the offices if rented to a 3rd party
$200,000
TOTAL
$1,180,000
Part A: What are the total relevant costs of the project?

Added by Cristian T.

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