1. You are considering two possible marketing campaigns for a new product. The

first marketing campaign requires an outlay next year of 2M, and then will pay

0.24M in all subsequent years. The second marketing campaign requires an outlay

of 3M next year and then will pay 0.27M in all subsequent years.

(a) What is the IRR for each marketing campaign?

(b) Suppose you can only choose one campaign. Under what values of the

required rate of return would you choose the first campaign over the second?

The second over the first? Are there values where you would choose neither

campaign?

(c) Suppose the firm's discount rate is 8%. If neither campaign is chosen, the

firm earns 3M per year in perpetuity. The next dividend is paid one year

from now. Calculate the total value of the firm's equity, assuming that the

firm chooses the marketing campaign that maximizes NPV.