21.12 Naylor Coulthard Limited is considering investing in a major advertising promotion of one of its skincare
Question:
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?
Step by Step Answer:
Business Accounting And Finance For Non Specialists
ISBN: 9781861528728
1st Edition
Authors: Catherine Gowthorpe