21.12 Naylor Coulthard Limited is considering investing in a major advertising promotion of one of its skincare

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21.12 Naylor Coulthard Limited is considering investing in a major advertising promotion of one of its skincare products. The advertising campaign would cost £250 000, all of which is assumed to be spent at Time 0. The effectiveness of the advertising would be short-lived; it would produce incremental cash inflows only in years 1 and 2. The year 1 net cash inflow is estimated at £196 000. The net cash inflow for year 2 is estimated at £168 000. After the end of year 2 another major advertising campaign would probably be needed to produce further incremental revenues.

The company's cost of capital is 9%. What is the NPV of the advertising promotion project? Does the NPV suggest that the project should be accepted or rejected?

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