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Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $168,810 and bring in additional sales over the
Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $168,810 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $77,000, with associated expenses of $26,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience's tax rate is 40 percent. (Hint: The $168,810 advertising cost is an expense.) Use Appendix A for your reference. (Use appropriate factor(s) from the tables provided.) Required: 1. Compute the payback period for the advertising program. 2. Calculate the advertising program's net present value, assuming an after-tax hurdle rate of 10 percent. (Round your intermediate and final answers to the nearest whole dollar.) 1. Payback period 3 years 2. Net present value (29,795)
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