Investing in autonomous construction vehicles Vs. normal construction trucks.

E-r eaders vs. Printed Books: A Financial Analysis Andrew Fraser Markus Linke Russ Reilly Justin Rosales Daniel Rossman Abbey Staffnik Mohammed Tarin Berman Tijerino Robert Wellman Prepared in partial fulfillment requirements in CEE 300 – Engineering Business Practices Dr. Thomas Seager , Instructor Arizona State University 31 July, 2012 Executive Summary An e-reader allows individuals to download books via a Wi -Fi or cellular network, and read them on an electronic display without having to print t hem on paper. Since e -books are generally less expensive than printed books, over a period of time the purchase of an e-reader may pay for itself depending on the consumer ’s reading habits. T o decide whether or not the purchase of an e -reader is cost - efficient , a cost analysis must be done to compare investing in an e -reading device to the alternative of buying printed books. In this analysis, the net present value (NPV) of an e -reader is compared to printed books , and an annual discount rate is determ ined where the initial investment of the e -reader becomes less expensive than purchasing printed books. The types of readers accounted for in this discussion are light readers, reading six books per year, average readers, reading twelve books per year, and heavy readers, reading a pproximately twenty -four books per year. At some point in the future, the investment of purchasing an e -reader becomes the most cost -efficient method of reading for every reader. The question on every potential buyer ’s mind is how l ong will this investment take before the benefits are realized , and is the investment worth it? The popular Kindle e -reader is chosen to analyze e-readers vs. printed books cost . The recommendation is to purchase an e -reader because e- readers are more co st-efficient than printed books at some point in the future, depending on how many books are read in one year . Table of Contents Introduction………………………….………………………………………………\ …………...1 Problem Statement………………………………………………\ …………………………….....1 Assumptions ……………...............................................................................................................3 Methods …………………………….………………………………………………\ ………..…...8 Discussion and Analysis ………………………………...………………………………………..9 Recommendation..……………………………………………………\ ………………………….12 References……… ……………………………………………………\ ………………………….13 List of figures Figure 1.0 – Cash flow diagram for hardcover books….……………………………….………...2 Figure 1.1 – Cash flow diagram for Kindl e and e-books ………...…………………….……...…2 Figure 2 .0 – Comparison of seven e -reader models…………………………………….………...9 Figure 3 .0 – Comparison of money spent vs. number of books read....…………………..……..10 Figure 4.0 – Comparison of Kindle vs. pr int, 24 books…………………………………..……...10 Figure 5 .0 – Comparison of Kindle vs. print, 12 books……………………………………..…...11 Figure 6 .0 – Comparison of Kindle vs. print, 6 books………………………………………..….11 List of tables Table 1.0 – Top 10 e -readers ..…………………………………………………………………\ …5 Table 2.0 – Range of readers.…..………………………………………………………………\ …6 Table 3 .0 – List of 24 books. …..……………………………………………\ …………………….7 1 Introduction Uncannily similar to the challenges faced by the music industry, the book publishing and bookstore industry is being transformed by technological changes, revolutionary innovations, and unforeseen paradigm shifts. The succ essful business model for hardcover and softcover books sold in brick- and-mortar s tores generated great profits for many U.S. corporations ; however, the business model is being uprooted, reinvented, and transformed. Just as the delivery of music (i.e., songs and albums) began to shift from physical, tangible compact discs to digitized mediums, so are the co ntents of books and literature. This digital transition has been foretold by the popularity of e -book readers, such as the Kindle and Nook. From the perspective of tangible books, the majority of the cost is in the initial purchase price whether it is a hardcover or softcover version. Over t ime, books begin to accumulate, and either must be stored, given to other readers, discarded, or possibly sold. Storing a collection of books can oc cur in several different ways. The most traditional, and probably the mos t common, method is to display or stack them on existing household surfaces that subsequently result in negligible additiona l costs. For the more serious book collector, a dedicated shelf or bookcase may be necessary, thus resulting in the ex penditure of additional funds. Alternatively, the books can be given away to friends and acquaintances, which produce no revenue but can create a non- monetary satisfaction. Another option is to donate the book to a non- profit organization, such as the library or Salvation Army. According to the Salvation Army, a tax deduction can be taken for the donation where the value of a softcover ranges from $0.75 to $1.50 and a hardcover book from $1.00 to $3.00. Now, with technological innovations, an individual can read the same version of a printed book e lectronically via an e -reader. E-books for e -readers are sold at one price. However, there are a plethora of e- reader models, and they are considerab ly different from one another. They are avai lable from an assortment of manufacture rs, and are merchandized under brand names such as Kindle, Nook, Sony Reader , Kobo, and BeBook. New e-readers range from $79.00 to $379.00, depending on s uch variables as memory , features, and color. Books allow consumers to read, but some tablets, such as the iPad and Kindle Fire, have the functionality and abilities of a computer.

Therefore, in terms of functionality, the playing field must be narrowed and the best choice is primarily controlled by cost factors. By contrast, choices are limited for printed books, where readers can sometimes choose between hardcover or softcover. Problem Statement: Is it more economical to purchase an e -reader or to continue purchasing printed books? The following figures show simple cash flow diagram s for one hardcover book purchased per month, including shipping, and the $79 Kindle, including one e -book per month, from Amazon.com. The cash flow diagrams do not account for storage and electricity costs, and the reasoning behind these exclusions are explained below in the Assumptions section. 2 Figure 1.0 – Cash flow diagram for twelve hardcover books purchased in one year (one book per month). Figure 1.1 – Cash flow diagram for the $79 Kindle and twelve e -books purchased in one year (one e -book per month) .

Although the cash flow diagrams in Figures 1.0 and 1.1 look fairly simple, the problem statement is much more complicated than utilizing a payback analysis. Figures 1.0 and 1.1 do not account for time, and moving money through time is an important financial concept. Calculating the net present value and understanding discount rates are the foundations of moving money through time. 3 Assumptions To make the comparison of e -readers to hardcover and softcover books, a few assumptions are necessary. It is assumed the individual asking the question, “I s buying books or an e- reader cheaper?” will truly accept either one as long as it is the more affordable choice.

Subjective and qualitative factors , such as wanting more functionality or the joy of having a hard copy over a digital copy , will not be incorporated in this analysis.

To make an accurate comparison, it is necessary to examine the functionality for both mediums of reading. On the level of functionality, books do nothing more than display text on a page for the reader to view. The functionality of some e -readers far surpasses that of books to the extent that they are no longer comparable. Therefore, the e -readers that are examined for this report are ones with comparable functionality to that of a book. To start l ooking at tablets that have applications , internet browsing, and data storage would be to change the question from , “ A re books or e -readers cheaper? ” to, “What is the cheapest tablet I can purchase that will allow me to read e -books?” In other words, without equating the property of functionality, books would already be out of the question, given that they do not offer internet, apps, or data storage. Equating functionality for the purpose of compa rison takes the form of excluding certain devices from the analysis. The process essentially weeds out e -readers that have the multimedia experience books cannot compete with, and leaves e -readers that actually behave like book s.

Here are some of the exclu ded major e-readers or major tab lets that function as e -readers: the iPad, Kindle Fire, Nook Color, and the Nook Tablet. All of the preceding devices function as much more than a book, and are therefore not comparable to books for the scope of this report.

E -readers that offer close functionality as a book include: Kindle Touch, Nook Simple Touch Reader, Sony Reader Touch, BeBook, and Kobo. Out of these devices, the most affordable will be determined. The price will then be compared to the price of buy ing printed books, resulting in recommendations to the original problem statement. Table 1.0 summarizes a breakdown of the e -readers. A couple other important exclusions are the storage of printed books and the cost of electricity required to charge an e-reader. Medium -sized book cases range from $30 to $50, and they can hold fifty to eighty printed books. Since the study focuses on a smaller range of books, six to twenty -four books, the cost to store books is negligible. E -reader batteries vary in watt- hour. For example, the Kindle uses a 6.47 watt -hour battery (Wells, 2012). The cost of electricity to charge small watt -hour batteries is also negligible and could cost as little as $0.70 per year. In the comparison of net present value versus disc ount rate, a maximum discount rate of 24% was chosen. Higher discount rates are improbable in most financial applications, therefore they were not considered in the calculations of net present value for any extension of time. For the recommendation present ed, the suggested discount rate by the OMB of 7% was used 4 (“Guidelines and Discount Rates…”, 1992) . The expenditures calculated for the e-reader assumed the e- reader would not malfunction, have any defects, or break in the lifetime of ownership, thus no ex tended warranties were included in the cost of the product. It was also assumed that resale, trade- ins or lack of ownership of purchased books, print or e -reader, would not occur. Thus, cash flows were based on perpetual ownership of a purchased product. 5 Table 1.0 – Top 10 e -readers based on customer rating Table designed from “2012 Best eBook Reader Reviews and Comparisons” ( http://ebook- reader-review.toptenreviews.com/ppc - index.html?cmpid=165617&s_kwcid=TC ). E-r ea der Cu s to m e r Ranking Pri ce Touch Sc r een Sc r een Si ze Display Res ol uti on Ba tter y 1W ei ght 2 Memor y Expandabl e Memeor y Di mens i ons Ad sWi Fiema i l Apps BeBook Neo 8 159 x6" Gr ey s c a l e 600 x 800 97 10.5 512MB x7.7 x 4.8 x 0.40 x Ki ndl e Touch 199 x6"Gr ey Sc a l e 600 x 80 307 .8 4GB 6.8 x 4.7 x 0.40xx Ki ndl e Touch 139x6"Gr ey Sc a l e 600 x 80 307 .8 4GB 6.8 x 4.7 x 0.40 x Ki ndl e DX 5379 9.7"Gr ey Sc a l e 824 x 1200 10714.6 4GB 10.4 x 7.2 x 0.4 Kindle Fire 4199 x7" Col or 1024 x 600 818.9 8GB 7.5 x 4.7 0.45 xxx K obo W i r el es s 10100 6"Gr ey Sc a l e 600 x 800 6 .52GB x4.6 x 6.5 x 0.4 x Nook 1 s t Edi ti on 9x6"Gr ey s c a l e 600 x 800 512.1 2GB 7.7 x 4.9 x 0.5 Nook Si mpl e Touch 299 x6"Gr ey s c a l e 800x600 307 .5 2GB x6.5 x 5 x 0.47 x Nook Si mpl e Touch with glow light 139x6"Gr ey s c a l e 800 x 600 3072GB x6.5 x 5 x 0.47 x Nook Col or 6169 x7" Col or 1040 x 600 815.8 8GB x8.1 x 5 x 0.48 xxx Nook Tabl et 3199 x7" Col or 1040 x 600 11.515.8 8 GB x8.1 x 5 x 0.48 xxx Nook Tabl et 249x7" Col or 1040 x 600 11.515.8 16 GB x8.1 x 5 x 0.48 xxx Sony PRS-T1WC 7130 x6"Gr ey s c a l e 800 x 600 205 .9 1 .3 x6.9 x 4.4 x 0.40 x 6 The cost per book in the analysis for e -reader, hardcover and softcover , was calculated from an average based on prices displayed in the Amazon marketplace. The books whose prices are integrated into the average are displayed in Table 3.0. Most Amazon marketplace sellers do not offer their customers “FREE Super Saving Shipping,” unless the seller is endorsed as “FULFILLMENT BY AMAZON;” therefore, the $3.99 shipping cost is only added to the average prices . Cash flows were calculated on a mo nthly basis for one year up to four years. The amount of books purchased per month was subject to an individual’s reading pace . Number of books read per year Number of books purchased in one year Reader description 24 2 per month Avid 12 1 per month Average 6 1 every other month Light Table 2 .0 – Range of readers Individuals who purchase less than six books per year were not considered because the likelihood of these individuals purchasing an e -reader is imp racticable. From this maximum, median, minimum approach, three scenarios were developed to calculate the net present value for varying discount rates with the associated cash flows for the e -reader, hardcover and softcover books. 7 Table 3 .0 – List of 24 books based on popularity and genre Nonfiction books taken from “ Time Magazine's All-time 100 Best Non-fiction Books” and the New York Times "Best Sellers Combined Print and E -book Nonfiction: July 29, 2012." Mystery books taken from “The 100 Best Mystery Novels of All Time.” Fantasy books taken from “Top 25 Best Fantasy Books.” Popular titles and authors determined the other books. KindleNookSony Reader KoboBeBookSoft cover*Hard cove r* Title Author Year of publication E-book price ( $) E-book price ( $) E-book price ( $) E-book price ( $) E-book price ( $) Pri nt pri ce ( $) Pri nt pri ce ( $) Ge nre Fifty Shades of Grey E.L. James20119. 999. 99 9. 99 9. 99 X9. 5718. 55 The Chaperone Laura Mori arty201212. 9912. 99 12. 99 12. 99 XX17. 79 A Di scove ry of Wi tche s Deborah Harkness20119. 999. 99 9. 99 9. 99 X9. 617. 91 Li ve and Le t Di e Ian Fleming19549. 69XX X X10. 2 X Steve Jobs Walter Isaacson201114. 9914. 99 14. 99 14. 99 XX16. 84 The Immortal Life of Henrietta Lacks Re be cca Skl oot20109. 999. 99 9. 99 9. 99 X9. 615. 54 In the Garden of Beasts Eri k Larson201111. 9911. 99 11. 99 11. 99 X9. 615. 47 In Cold Blood Truman Capote19669. 999. 99 9. 99 9. 99 X10. 215. 64 Pride and Prejudice Jane Austen18130. 990. 99 0. 95 0. 99 03. 007. 95 The Notebook Nicholas Sparks19967. 997. 99 7. 99 7. 99 X9. 3310. 75 The Flame and the Flower Kathleen E. Woodiwiss19727. 997. 99 7. 99 7. 99 X7. 99 X Matters of the Heart Danielle Steel20097. 997. 99 7. 99 7. 99 X7. 99 X The Memoirs of Sherlock Holmes Si r Arthur Conan Doyl e19860. 990. 99 0. 95 2. 99 03. 526 Complete Stories and Poems of Edgar Allan Poe Edgar Allan Poe19840. 990. 99 12. 99 0. 99 0X16. 3 The Silence of the Lambs Thomas Harri s19887. 997. 99 7. 99 7. 99 X10. 19 20 The Godfather Mari o P u z o19699. 999. 99 9. 99 XX10. 88 14. 04 The Hunger Games Suzanne Collins20104. 638. 99 8. 99 9. 39 X4. 879. 98 Breaking Dawn (The Twilight Saga) Stephanie Meyer20088. 998. 99 8. 99 8. 99 X9. 5412. 63 Harry Potter and the Deathl y Hal l ows J.K. Rowling20099. 999. 99 9. 99 9. 99 X10. 19 19. 22 Hol e s Louis Sachar20006. 996. 99 6. 99 6. 99 X6. 9912. 24 A Game of Thrones George R.R. Marti n19968. 998. 99 8. 99 8. 99 X9. 9920. 16 The Fellowship of the Ring J.R.R. Tolkien19888. 328. 32 10. 99 9. 39 X8. 7616. 57 Gardens of the Moon Steven Erikson20092. 992. 99 2. 99 2. 99 X10. 17 16. 99 The Name of the Wind Patrick Rothfuss20078. 998. 99 8. 99 8. 99 X11. 56 16. 63 Average: 8. 101258. 22173913 8. 856086957 8. 299090909 08. 0552381 16. 0571429 *** The e-book is available at the Pottermore Shop ** The only available e-book version at the Sony Reader Store is the 2012 one, not the 2010 version for $0.99 * Prices taken from Amazon.com, $3.99 shipping Fantasy Fiction Nonfiction Romance My s t e ry Young adult 8 Methods There are a number of different e- readers available in today’s market. The e- readers that were analyzed for this report a re: Kindle, Nook, Sony Reader, Kobo and BeBook. These e - readers have differing specifications, abilities, and access to e- books. The prices of these e- reader s range from $79 to $160, with the basic Kindle being the cheapest and the Be Book being the most ex pensive as shown above in Table 2.0. A representative list of twenty -four books was compiled using four books from six different genres as shown in Table 3.0. The prices of these books were used to determine an average price for three different categories: hardcover , softcover, and e-book. The e -book category had several prices for each individual e-reader model . The prices for the hardcover, softcover and Kindle e- books are based on t he list prices from Amazon.com. Prices for the other e -reader models’ e- books came from their own representative ma rketplaces. In addition, the additional shipping cost of $3.99 was added to the average price of printed books .

In order to compare the cost of the Kindle to print books , it was determined the analysis would use ranges of twenty -four, twelve , and six books read per year as these reflect avid, average, and light readers. A net present v alue analysis was conducted using a wide range of annual discount rates (0.5 -24%) to compare t he value of an e-reader to hardcover and softcover books , as show in Figures 2.0, 3.0 and 4.0.

Here is an example of how the annual discount rate was converted to a monthly effective rate: , = 0.5% , = 12 =(1 + )(1 / ) − 1 = (1 + 0.005) ( 1 /12 ) −1= 4.157 ( 10 ) − 4 After computing the effective rate, Microsoft Excel’s Net Present Value function, NPV(rate, value, value…), was used to compute the Net Present Value for e -readers and printed books. Here is an example of calculating the net present value by hand for a $79 Kindle after one year :

= ∗ ( ) ( 1 + ) ( ) + =( − 79 +12 ∗ −8.1 ) ∗ 1 ( 1 + 0.005 ) 1 +(− 79) =$254. 32 9 Discussion and Analysis Figure 2.0: Comparison of e -readers Figure 2.0 compares seven differ ent e-readers when purchasing twenty -four e-books per year during their first year of ownership. An annual discount rate range of 0 to 24% was used. The price includes the purchase of the e -reader and twenty-four books over the course of the year, two per month. Figure 2.0 also shows the BeBook is the cheapest option. The BeBook offers free access to thousan ds of classic works that are pa rt of the public domain. However, the BeBook does not offer a digital store in which the reader may purchase recent texts and therefore is deemed inadequate for this analysis.

From Figure 2.0, it was determined the $79 Kindle is the cheapest and best option. This is based on the price of the e -reader itself and the average cost of books for the respective e- reader. Additionally, the Kindle has access to the wide st range of titles and best represents a “digital book.” The following figures show the Net Present Value comparison between the $79 Kindle and printed books. ($400.00) ($300.00) ($200.00) ($100.00)$0.00 0 0.05 0.10.15 0.20.25 NPV Annual discount rate 24 books/year, year 1 e -reader comparison $160 BeBook $79 Kindle $100 Nook $100 Kobo $110 Kindle $140 Kindle $130 Sony Reader 10 Figure 3.0: Money spent vs. the number of books read in one year Due to the price disparity between e- books and printed books shown in Table 3.0, it should be obvious that the Kindle will eventually pay for itself after a certain number of books.

Figure 3.0 was produced using a simple financial analysis that is not time dependent. From Figure 3.0, the $79 Kindle is more cost -efficient than hardcover books after an individual reads seven books and is more cost -efficient than softcover books after an individual reads twenty -one books. Due to the time value of money , it is important to consider when, relative to the initial purchase of the $79 Kindle, the reader will read that twenty -first book. Figure 4.0: Kindle vs. print hardcover and softcover after two years of ownership Figure 4.0 compares the $79 Kindle vs. printed books when purchasing 24 e-books and printed per year during their second year of ownership. From Figure 4.0, the $79 Kindle line $0 $100 $200 $300 $400 $500 $600 $700 $800 0 10 203040 Money spent on books Number of books read Money spent vs. number of books read Kindle Softcover Hardcover ($900.00) ($600.00) ($300.00)$0.00 0% 5%10% 15%20%25% NPV Annual discount rate 24 books/year, year 2: Kindle vs. print Kindle Hardcover Softcover 11 intersects with softcover line at an annual discount rate of approximately 19.5% . At annual discount rates lower than 19.5%, e -books are cheaper than softcover books. E -books and softcover books will always be cheaper than hardcover books. Figure 5.0: Kindle vs. print hardcover and softcover after two years of ownership Figure 5.0 compares the $79 Kindle to printed books when purchasing 12 e -books and printed books per year during their second year of ownership. From Figure 5 .0, the $79 Kindle line intersects with s oftcover line at an annual discount rate of approximately 21.0% . At annual discount rates lowe r than 21.0%, e-books are cheaper than softcover books. Similar to Figure 4.0, the $79 Kindle is more cost -efficient after the second year of e -reader ownership. Figure 6 .0: Kindle vs. print hardcover and softcover after 4 years of ownership Figure 6.0 compares the $79 Kindle vs. printed books when purchasing 6 e -books and printed books per year during their fourth year of ownership. From Figure 6.0, the $79 Kindle line intersects with s oftcover line at 10.5% . At discount rates lower than 10.5%, e -books are ($600.00) ($500.00) ($400.00) ($300.00) ($200.00) ($100.00) $0.00 0% 5%10% 15%20%25% NPV Annual discount rate 12 books/year, year 2: Kindle vs. print Kindle Hardcover Softcover ($600.00) ($500.00) ($400.00) ($300.00) ($200.00) ($100.00)$0.00 0% 5%10% 15%20%25% NPV Annual discount rate 6 books/year, year 4: Kindle vs. print Kindle Hardcover Softcover 12 cheaper than softcover books. Unlike Figures 4.0 and 5.0, it takes the $79 Kindle four years after the initial purchase before the e -reader is more cost -efficient than printed books because only six books a re read throughout one year . From Figures 4 .0 and 5.0, the $79 Kindle is cheaper than printed books after the second year of ownership. Prior to year two, the initial cost of purchasing an e -reader and e-books exceeds the cost of purchasing the printed b ooks; therefore, purchasing a softcover book is the most cost -effic ient method of purchasing books. If an individual reads at least six books per year, then the e -reader is more affordable after four years. If an individual reads at least twelve books per year, then the e -reader is more affordable after two years. Table 4.0 – Cost Summary of Kindle, Hardcover and Softcover at one Book per Month 1 Book per Month Kindle, Hardcover and Softcover Month 0 1 2 3 4 5 6 7 8 9 10 11 12 21 24 # of Books 0 1 2 3 4 5 6 7 8 9 10 11 12 21 24 Kindle 79.00* 8.10 8.10 8.10 8.10 8.10 8.10 8.10 8.10 8.10 8.10 8.10 8.10 8.10 8.10 87.10 95.20 103.30 111.40 119.50 127.60 135.70 143.80 151.90 160.00 168.10 176.20 249.10 273.40 Hardcover 20.04 20.04 20.04 20.04 20.04 20.04 20.04 20.04 20.04 20.04 20.04 20.04 20.04 20.04 40.08 60.12 80.16 100.20 120.24 140.28 160.32 180.36 200.40 220.44 240.48 420.84 480.96 Softcover 12.04 12.04 12.04 12.04 12.04 12.04 12.04 12.04 12.04 12.04 12.04 12.04 12.04 12.04 24.08 36.12 48.16 60.20 72.24 84.28 96.32 108.36 120.40 132.44 144.48 252.84 288.96 Monthly price includes one shipping charge per order of printed books $3.99 * Initial Purchase of Kindle Recommendation The e- reader eventually becomes the cheaper option. Assuming perpetual ownership of e - reader s and printed books, the e -reader should be purchased if a minimum of six books are read per year. The e-reader becomes more cost -efficient than printed books quickly if more books are read per year . If an avid reader with a high interest rate credit card (~21%) does not have the funds to buy an e -reader, then the individual can feel confident in buying an e -reader with the credit card based on the graphs and data presented in the analysis. The e -reader will eventuall y pay for itself, and the individual will save money when purchasing the e -reader instead of printed books. 13 R eferences “2012 Best eBook Reader Reviews and Comparisons.” Top 10 Reviews, 2012. Web. 19 July 2012. < http://ebook- reader-review.toptenreviews .com/ppc- index.html?cmpid=165617&s_kwcid=TC >. "Best Sellers Combined Print and E-book Nonfiction: July 29, 2012." The New York Times, 2012. Web. 20 July 2012. . “Guidelines and Discount Rates for Benefit -Cost Analysis of Federal Programs.” Office of Management and Budget, 29 Oct. 1992. Web. 14 July 2012.

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