Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $177,085 and bring in additional sales over the next five years The projected additional sales revenue in year 1 is $82,000, with associated expenses of $28,500 The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year Allegience's tax rate is 30 percent ( Hint The $177,085 advertising cost is an expense ) Use Appendix A for your reference Note Use appropriate factor(s) from the tables provided Required Compute the payback period for the advertising program Calculate the advertising program's net present value, assuming an after tax hurdle rate of 10 percent Future Value and Present Value Tables Table I Future Value of $1 00(1 r ) n n Period 4 6 8 10 12 14 20 1 1 040 1 060 1 030 1 100 1 120 1 140 1 200 2 1 082 1 124 1 166 1 210 1 254 1 300 1 440 3 l 125 1 191 1 260 1 331 1 405 1 482 1 728 4 1 170 1 263 1 361 1 464 1 574 1 689 2 074 5 1 217 1 338 1 469 1 61l 1 762 1 925 2 488 6 1 265 1 419 1 587 1 772 1 974 2 195 2 986 7 1 316 1 504 1 714 1 949 2 211 2 502 3 583 8 1 369 1 594 1 851 2 144 2 476 2 853 4 300 9 1 423 1 690 l 999 2 359 2 773 3 252 5 160 10 l 480 1 791 2 159 2 594 3 106 3 707 6 192 11 1 540 1 898 2 332 2 853 3 479 4 226 7 430 12 1 601 2 0 12 2 513 3 139 3 896 4 818 8 916 13 l 665 2 133 2 720 3 452 4 364 5 492 10 699 14 l 732 2 261 2 937 3 798 4 887 6 261 12 839 15 1 801 2 397 3 172 4 177 5 474 7 138 15 407 20 2 191 3 207 4 661 6 723 9 646 13 743 38 338 30 3 243 5 744 10 063 17 450 29 960 50 950 237 380 40 4 301 10 286 21 725 45 260 93 051 188 880 1,469 300 Table II Future Value of a Series of $1 00 Cash Flows (Ordinary Annuity)(((1 r) n n 1) r) Period 4 6 8 10 12 14 20 1 1 000 1 000 1 000 l 000 1 000 1 000 1 000 2 2 040 2 060 2 080 2 100 2 120 2 140 2 220 3 3 122 3 184 3 246 3 310 3 374 3 440 3 640 4 4 247 4 375 4 506 4 641 4 779 4 921 5 368 5 5 416 5 637 5 867 6 105 6 353 6 610 7 442 6 6 633 6 975 7 336 7 716 8 115 8 536 9 930 7 7 898 8 394 8 923 9 487 10 089 10 730 12 916 8 9 214 9 898 I0 637 Il 436 12 300 13 233 16 499 9 10 583 ll 491 12 488 13 580 14 776 16 085 20 799 10 12 006 13 181 14 487 15 938 17 549 19 337 25 959 11 13 486 14 972 16 646 18 531 20 655 23 045 32 150 12 15 026 16 870 18 977 21 385 24 133 27 271 39 580 13 16 627 18 882 21 495 24 523 28 029 32 089 48 497 14 18 292 21 015 24 215 27 976 32 393 37 581 59 196 15 20 024 23 276 27 152 31 773 37 280 43 842 72 035 20 29 778 36 773 45 762 57 276 75 052 91 025 186 690 30 56 085 79 058 113 283 164 496 241 330 356 790 l,181 900 40 95 026 154 762 259 057 442 597 767 090 1 342 000 7,343 900 Table III Present Value of $1 00 (1 (1 r) n n) Period 4 6 8 10 12 14 16 18 20 22 24 26 28 30 32 1 962 943 926 909 893 877 862 847 833 820 806 794 781 769 758 2 925 890 857 826 797 769 743 718 694 672 650 630 610 592 574 3 889 840 794 751 712 675 641 609 579 551 524 500 477 455 435 4 855 792 735 683 636 592 552 516 482 451 423 397 373 350 329 5 822 747 681 621 567 519 476 437 402 370 341 315 291 269 250 6 790 705 630 564 507 456 410 370 335 303 275 250 227 207 189 7 760 665 583 513 452 400 354 314 279 249 222 198 178 159 143 8 731 627 540 467 404 351 305 266 233 204 179 157 139 123 108 9 703 592 500 424 361 308 263 225 194 167 144 125 108 094 082 10 676 558 463 386 322 270 227 191 162 137 116 099 085 073 062 11 650 527 429 350 287 237 195 162 135 112 094 079 066 056 047 12 625 497 397 319 257 208 168 137 112 092 076 062 052 043 036 13 601 469 368 290 229 182 145 116 093 075 061 050 040 033 027 14 577 442 340 263 205 160 125 099 078 062 049 039 032 025 021 15 555 417 315 239 183 140 108 084 065 051 040 031 025 020 016 20 456 312 215 149 104 073 051 037 026 019 014 010 007 005 004 30 308 174 099 057 033 020 012 007 004 003 002 001 001 40 208 097 046 022 011 005 003 001 001 Table IV Present Value of Series of $1 00 Cash Flows 1 r (1 (1 (1 r n n))) Period 4 6 8 10 12 14 16 18 20 22 24 25 26 28 30 1 0 962 0 943 0 926 0 909 0 893 0 877 0 862 0 847 0 833 0 820 0 806 0 800 0 794 0 781 0 769 2 1 886 1 833 1 783 1 736 1 690 1 647 1 605 1 566 1 528 1 492 1 457 1 440 1 424 1 392 1 361 3 2 775 2 673 2 577 2 487 2 402 2 322 2 246 2 174 2 106 2 042 1 981 1 952 1 923 1 868 1 816 4 3 630 3 465 3 312 3 170 3 037 2 914 2 798 2 690 2 589 2 494 2 404 2 362 2 320 2 241 2 166 5 4 452 4 212 3 993 3 791 3 605 3 433 3 274 3 127 2 991 2 864 2 745 2 689 2 635 2 532 2 436 6 5 242 4 917 4 623 4 355 4 111 3 889 3 685 3 498 3 326 3 167 3 020 2 951 2 885 2 759 2 643 7 6 002 5 582 5 206 4 868 4 564 4 288 4 039 3 812 3 605 3 416 3 242 3 161 3 083 2 937 2 802 8 6 733 6 210 5 747 5 335 4 968 4 639 4 344 4 078 3 837 3 619 3 421 3 329 3 241 3 076 2 925 9 7 435 6 802 6 247 5 759 5 328 4 946 4 607 4 303 4 031 3 786 3 566 3 463 3 366 3 184 3 019 10 8 111 7 360 6 710 6 145 5 650 5 216 4 833 4 494 4 192 3 923 3 682 3 571 3 465 3 269 3 092 11 8 760 7 887 7 139 6 495 5 938 5 453 5 029 4 656 4 327 4 035 3 776 3 656 3 544 3 335 3 147 12 9 385 8 384 7 536 6 814 6 194 5 660 5 197 4 793 4 439 4 127 3 851 3 725 3 606 3 387 3 190 13 9 986 8 853 7 904 7 103 6 424 5 842 5 342 4 910 4 533 4 203 3 912 3 780 3 656 3 427 3 223 14 10 563 9 295 8 244 7 367 6 628 6 002 5 468 5 008 4 611 4 265 3 962 3 824 3 695 3 459 3 249 15 11 118 9 712 8 559 7 606 6 811 6 142 5 575 5 092 4 675 4 315 4 001 3 859 3 726 3 483 3 268 20 13 590 11 470 9 818 8 514 7 469 6 623 5 929 5 353 4 870 4 460 4 110 3 954 3 808 3 546 3 316 30 17 292 13 765 11 258 9 427 8 055 7 003 6 177 5 517 4 979 4 534 4 160 3 995 3 842 3 569 3 332 40 19 793 15 046 11 925 9 779 8 244 7 105 6 234 5 548 4 997 4 544 4 166 3 999 3 846 3 571 3 333

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Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $177,085 and bring in additional sales over the next

Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $177,085 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $82,000, with associated expenses of $28,500. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience's tax rate is 30 percent. (Hint: The $177,085 advertising cost is an expense.)

Use Appendix A for your reference.

Note: Use appropriate factor(s) from the tables provided.

Required:

Compute the payback period for the advertising program.

Calculate the advertising program's net present value, assuming an after-tax hurdle rate of 10 percent.

Future Value and Present Value Tables

Table I

Future Value of $1.00(1 + r)ⁿn

Period	4%	6%	8%	10%	12%	14%	20%
1	1.040	1.060	1.030	1.100	1.120	1.140	1.200
2	1.082	1.124	1.166	1.210	1.254	1.300	1.440
3	l.125	1.191	1.260	1.331	1.405	1.482	1.728
4	1.170	1.263	1.361	1.464	1.574	1.689	2.074
5	1.217	1.338	1.469	1.61l	1.762	1.925	2.488
6	1.265	1.419	1.587	1.772	1.974	2.195	2.986
7	1.316	1.504	1.714	1.949	2.211	2.502	3.583
8	1.369	1.594	1.851	2.144	2.476	2.853	4.300
9	1.423	1.690	l.999	2.359	2.773	3.252	5.160
10	l.480	1.791	2.159	2.594	3.106	3.707	6.192
11	1.540	1.898	2.332	2.853	3.479	4.226	7.430
12	1.601	2.0 12	2.513	3.139	3.896	4.818	8.916
13	l.665	2.133	2.720	3.452	4.364	5.492	10.699
14	l.732	2.261	2.937	3.798	4.887	6.261	12.839
15	1.801	2.397	3.172	4.177	5.474	7.138	15.407
20	2.191	3.207	4.661	6.723	9.646	13.743	38.338
30	3.243	5.744	10.063	17.450	29.960	50.950	237.380
40	4.301	10.286	21.725	45.260	93.051	188.880	1,469.300

Table II

Future Value of a Series of $1.00 Cash Flows (Ordinary Annuity)(((1+r)ⁿn 1) r)

Period	4%	6%	8%	10%	12%	14%	20%
1	1.000	1.000	1.000	l.000	1.000	1.000	1.000
2	2.040	2.060	2.080	2.100	2.120	2.140	2.220
3	3.122	3. 184	3.246	3.310	3.374	3.440	3.640
4	4.247	4.375	4.506	4.641	4.779	4.921	5.368
5	5.416	5.637	5.867	6.105	6.353	6.610	7.442
6	6.633	6.975	7.336	7.716	8.115	8.536	9.930
7	7.898	8.394	8.923	9.487	10.089	10.730	12.916
8	9.214	9.898	I0.637	Il.436	12.300	13.233	16.499
9	10.583	ll.491	12.488	13.580	14.776	16.085	20.799
10	12.006	13.181	14.487	15.938	17.549	19.337	25.959
11	13.486	14.972	16.646	18.531	20.655	23.045	32.150
12	15.026	16.870	18.977	21.385	24.133	27.271	39.580
13	16.627	18.882	21.495	24.523	28.029	32.089	48.497
14	18.292	21.015	24.215	27.976	32.393	37.581	59.196
15	20.024	23.276	27.152	31.773	37.280	43.842	72.035
20	29.778	36.773	45.762	57.276	75.052	91.025	186.690
30	56.085	79.058	113.283	164.496	241.330	356.790	l,181.900
40	95.026	154.762	259.057	442.597	767.090	1.342.000	7,343.900

Table III

Present Value of $1.00 (1 (1+r)ⁿn)

Period	4%	6%	8%	10%	12%	14%	16%	18%	20%	22%	24%	26%	28%	30%	32%
1	.962	.943	.926	.909	.893	.877	.862	.847	.833	.820	.806	.794	.781	.769	.758
2	.925	.890	.857	.826	.797	.769	.743	.718	.694	.672	.650	.630	.610	.592	.574
3	.889	.840	.794	.751	.712	.675	.641	.609	.579	.551	.524	.500	.477	.455	.435
4	.855	.792	.735	.683	.636	.592	.552	.516	.482	.451	.423	.397	.373	.350	.329
5	.822	.747	.681	.621	.567	.519	.476	.437	.402	.370	.341	.315	.291	.269	.250
6	.790	.705	.630	.564	.507	.456	.410	.370	.335	.303	.275	.250	.227	.207	.189
7	.760	.665	.583	.513	.452	.400	.354	.314	.279	.249	222	.198	.178	.159	.143
8	.731	.627	.540	.467	.404	.351	.305	.266	.233	.204	.179	.157	.139	.123	.108
9	.703	.592	.500	.424	.361	.308	.263	.225	.194	.167	.144	.125	.108	.094	.082
10	.676	.558	.463	.386	.322	.270	.227	.191	.162	.137	.116	.099	.085	.073	.062
11	.650	.527	.429	.350	.287	.237	.195	.162	.135	.112	.094	.079	.066	.056	.047
12	.625	.497	.397	.319	.257	.208	.168	.137	.112	.092	.076	.062	.052	.043	.036
13	.601	.469	.368	.290	.229	.182	.145	.116	.093	.075	.061	.050	.040	.033	.027
14	.577	.442	.340	.263	.205	.160	.125	.099	.078	.062	.049	.039	.032	.025	.021
15	.555	.417	.315	.239	.183	.140	.108	.084	.065	.051	.040	.031	.025	.020	.016
20	.456	.312	.215	.149	.104	.073	.051	.037	.026	.019	.014	.010	.007	.005	.004
30	.308	.174	.099	.057	.033	.020	.012	.007	.004	.003	.002	.001	.001
40	.208	.097	.046	.022	.011	.005	.003	.001	.001

Table IV

Present Value of Series of $1.00 Cash Flows 1/r (1 (1 (1+rⁿn)))

Period	4%	6%	8%	10%	12%	14%	16%	18%	20%	22%	24%	25%	26%	28%	30%
1	0.962	0.943	0.926	0.909	0.893	0.877	0.862	0.847	0.833	0.820	0.806	0.800	0.794	0.781	0.769
2	1.886	1.833	1.783	1.736	1.690	1.647	1.605	1.566	1.528	1.492	1.457	1.440	1.424	1.392	1.361
3	2.775	2.673	2.577	2.487	2.402	2.322	2.246	2.174	2.106	2.042	1.981	1.952	1.923	1.868	1.816
4	3.630	3.465	3.312	3.170	3.037	2.914	2.798	2.690	2.589	2.494	2.404	2.362	2.320	2.241	2.166
5	4.452	4.212	3.993	3.791	3.605	3.433	3.274	3.127	2.991	2.864	2.745	2.689	2.635	2.532	2.436
6	5.242	4.917	4.623	4.355	4.111	3.889	3.685	3.498	3.326	3.167	3.020	2.951	2.885	2.759	2.643
7	6.002	5.582	5.206	4.868	4.564	4.288	4.039	3.812	3.605	3.416	3.242	3.161	3.083	2.937	2.802
8	6.733	6.210	5.747	5.335	4.968	4.639	4.344	4.078	3.837	3.619	3.421	3.329	3.241	3.076	2.925
9	7.435	6.802	6.247	5.759	5.328	4.946	4.607	4.303	4.031	3.786	3.566	3.463	3.366	3.184	3.019
10	8. 111	7.360	6.710	6.145	5.650	5.216	4.833	4.494	4.192	3.923	3.682	3.571	3.465	3.269	3.092
11	8.760	7.887	7.139	6.495	5.938	5.453	5.029	4.656	4.327	4.035	3.776	3.656	3.544	3.335	3.147
12	9.385	8.384	7.536	6.814	6.194	5.660	5.197	4.793	4.439	4.127	3.851	3.725	3.606	3.387	3.190
13	9.986	8.853	7.904	7.103	6.424	5.842	5.342	4.910	4.533	4.203	3.912	3.780	3.656	3.427	3.223
14	10.563	9.295	8.244	7.367	6.628	6.002	5.468	5.008	4.611	4.265	3.962	3.824	3.695	3.459	3.249
15	11.118	9.712	8.559	7.606	6.811	6.142	5.575	5.092	4.675	4.315	4.001	3.859	3.726	3.483	3.268
20	13.590	11.470	9.818	8.514	7.469	6.623	5.929	5.353	4.870	4.460	4.110	3.954	3.808	3.546	3.316
30	17.292	13.765	11.258	9.427	8.055	7.003	6.177	5.517	4.979	4.534	4.160	3.995	3.842	3.569	3.332
40	19.793	15.046	11.925	9.779	8.244	7.105	6.234	5.548	4.997	4.544	4.166	3.999	3.846	3.571	3.333