Allegience Insurance Companys management is considering an advertising program that would require an initial expenditure of $198,600 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $95,000, with associated expenses of $35,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegiences tax rate is 30 percent. (Hint: The $198,600 advertising cost is an expense.)

1.Compute the payback period for the advertising program.

2/Calculate the advertising programs net present value, assuming an after-tax hurdle rate of 10 percent.