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2. (5 points) As a marketing manager for one of the world's largest automakers, you are responsible for the advertising campaign for a new energy-efficient

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2. (5 points) As a marketing manager for one of the world's largest automakers, you are responsible for the advertising campaign for a new energy-efficient sports utility vehicle. Your support team has prepared the following table, which summarizes the year end profitability, estimated number of vehicles sold, and the average estimated selling price. The market interest rate is 9 percent. In light of the cost of advertising, the team leader recommends a low advertising intensity to maximize the value of the firm. Do you agree with this decision? Please explain, using the concept of net present value. Profitability by Advertising Intensity Profits (millions of $) Units sold (Thousands) Average Selling Price Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 Year 1 Year 2 Year 3 Advertising Intensity High $20 $80 $300 10 60 120 $35,000 $36,500 $38,000 Moderate 40 80 135 5 12.5 25 35,800 36,100 36,300 Low 75 110 118 4 6 7.2 35,900 36,250 36,000

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