The Financial 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 Financial 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 magazine’s 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 corporate tax rate is 40%.

How many magazines will the Financial Times have to sell each month to break even (in terms of NPV) on this investment at the end of the next 10 years?

Answer rating: 100% (QA)

The Financial Times needs to sell 13527 magazine copies per month to break even in terms of NPV on t... View the full answer