Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $165,500 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $75,000, with associated expenses of $25,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience's tax rate is 40 percent. (Hint: The $165,500 advertising cost is an expense.) Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. Compute the payback period for the advertising program. 2. Calculate the advertising program's net present value, assuming an after-tax hurdle rate of 10 percent. (Round your intermediate and final answers to the nearest whole dollar.) Answer is complete but not entirely correct. 1. Payback period 3 years Net present 2. value $ (29,143)
Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $165,500 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $75,000, with associated expenses of $25,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience's tax rate is 40 percent. (Hint: The $165,500 advertising cost is an expense.) Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. Compute the payback period for the advertising program. 2. Calculate the advertising program's net present value, assuming an after-tax hurdle rate of 10 percent. (Round your intermediate and final answers to the nearest whole dollar.) Answer is complete but not entirely correct. 1. Payback period 3 years Net present 2. value $ (29,143)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
am. 115.
Transcribed Image Text:Allegience Insurance Company's management is considering an advertising program that would require
an initial expenditure of $165,500 and bring in additional sales over the next five years. The projected
additional sales revenue in year 1 is $75,000, with associated expenses of $25,000. The additional sales
revenue and expenses from the advertising program are projected to increase by 10 percent each year.
Allegience's tax rate is 40 percent. (Hint: The $165,500 advertising cost is an expense.)
Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.)
Required:
1. Compute the payback period for the advertising program.
2. Calculate the advertising program's net present value, assuming an after-tax hurdle rate of 10 percent.
(Round your intermediate and final answers to the nearest whole dollar.)
Answer is complete but not entirely correct.
1.
Payback period
3
years
Net present
2.
$ (29,143)
value
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