The expected after-tax cost of an advertizing campaign is €1 million per month for the coming year. The advertizing will enable the company to maintain sales and the resulting cash flow at the current level. Without the campaign, the expected sales are lower, resulting in €1.5 million less cash after-tax for the company. Advertizing has a delayed impact on sales and cash flow. The delay is approximately one month.

(a) Show the monthly net incremental cash flow associated with the advertizing campaign.

(b) Calculate the PV of this advertizing project at 1% per month.

(c) Calculate its NPV.

(d) What is the rate of return on the advertizing?