### Allegience Insurance Company's Advertising Program Analysis**Scenario:**Allegience Insurance Company’s management is considering an advertising program requiring an initial expenditure of $172,120. This program is expected to generate additional sales over the next five years. For year 1, the additional sales revenue is projected at $79,000, with associated expenses of $27,000. These revenues and expenses are anticipated to grow by 10% each year. The company’s tax rate is 30%.**Instructions:**- Use Appendix A for calculations.- Apply appropriate factors from the provided tables.**Tasks:**1. **Compute the payback period** for the advertising program.2. **Calculate the net present value (NPV)** of the advertising program, using an after-tax hurdle rate of 10%.**Note:** Round all intermediate calculations and the final answer to the nearest whole dollar.**Table:**| Task | Answer ||---------------------|------------|| 1. Payback period | _____ years || 2. Net present value| _____ | # Future Value and Present Value Tables## Table I**Future Value of $1.00 ($1 + r$^n):**This table shows the future value of $1.00 invested at various interest rates (4%, 6%, 8%, 10%, 12%, 14%, 20%) over different periods.| Period | 4% | 6% | 8% | 10% | 12% | 14% | 20% ||--------|-----|-----|-----|-----|-----|-----|------|| 1 | 1.040 | 1.060 | 1.080 | 1.100 | 1.120 | 1.140 | 1.200 || 2 | 1.082 | 1.124 | 1.166 | 1.210 | 1.254 | 1.300 | 1.440 || 3 | 1.125 | 1.191 | 1.260 | 1.331 | 1.405 | 1.482 | 1.728 || 4 | 1.170 | 1.263 | 1.360 | 1.464 | 1.573 | 1.689 | 2.074 || 5 | 1.217 | 1.338 | 1.469 | 1.611 | 1.762 | 1.925 | 2.488 || 6 | 1.265 | 1.419 | 1.587 | 1.772 | 1.974 | 2.195 | 2.986 || 7 | 1.316 | 1.504 | 1.714 | 1.949 | 2.211 | 2.504 | 3.583 || 8 | 1.369 | 1.594 | 1.851 | 2.144 | 2.476 | 2.853 | 4.300 ||

Answered: Image /qna-images/answer/e70b1d07-d4b3-46b7-9fdf-8d098e7ca6dd.jpgPayback period refers to the number of years required to cover the initial investment of the project here, in the initial three years the cumulative cash flows becomes zero so , payback period is 3 years. Npv is calculated by adding the present value of all the cash inflows and subtracting the initial cash outflow which comes out to be $44,939.43 which is positive so it can be selected.

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Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $172,120 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $79,000, with associated expenses of $27,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience's tax rate is 30 percent. (Hint: The $172,120 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 calculations and final answer to the nearest whole dollar.) 1. Payback period 2. Net present value years

Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $172,120 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $79,000, with associated expenses of $27,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience's tax rate is 30 percent. (Hint: The $172,120 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 calculations and final answer to the nearest whole dollar.) 1. Payback period 2. Net present value years

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

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