A producer of electronic clocks, ClockRUs (CRU) wants to create an advertising campaign to stimulate their demand. Based on CRU?s experience, if they spend $250,000 on newspaper and magazines now, their sales should increase by $180,000 in the first year, and $150,000 in the second year. However, with the changing interest rate, and profitability concern, CRU must have 9% rate of return.

A) What is the Present Value of year 1 sales increase (cash flow in year 1)? (2 points)

B) What is the Present Value of year 2 sales increase (cash flow in year 2)? (2 points)

C) What is the cash flow now (what is CF(0))? (1 points)

D) Based on the NPV analysis, would you advise CRU to do the advertising? Explain why. (5 points)"