Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $165,500 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $75,000, with associated expenses of $25,000. 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 $165,500 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.) years 1. Payback period 2. Net present value Future Value and Present Value Tables Table 1 Future Value of $1.00(1 + " 4% 6% 8% 10% 12% 14% 20% Period 1 2 3 4 1.040 1.082 1.125 1.170 1.060 1.124 1.191 1.263 1.080 1.166 1.260 1.361 1.100 1.210 1.331 1.464 1.120 1.254 1.405 1.574 1.200 1.440 1.728 2.074 2.488 2.986 3.583 4.300 1.217 1.338 1.469 1.611 1.762 5 6 7 1.419 1.504 1.594 1.974 2.211 2.476 2.773 1.772 1.949 2.144 2.359 2.594 8 1.140 1.300 1.482 1.689 1.925 2.195 2.502 2.853 3.252 3.707 4.226 4.818 5.492 9 5.160 1.587 1.714 1.851 1.999 2.159 2.332 2.518 2.720 10 1.265 1.316 1.369 1.423 1.480 1.540 1.601 1.665 1.732 1.801 2.191 3.243 4.801 6.192 11 12 13 14 15 1.690 1.791 1.899 2.012 2.133 2.261 2.397 2.853 3.139 3.452 3.798 4.177 3.106 3.479 3.896 4.364 4.887 5.474 7.430 8.916 10.699 2.937 3.172 6.261 7.138 12.839 15.407 6.728 20 30 40 3.207 5.744 4.661 10.063 21.725 17.450 45.260 9.646 29.960 93.051 13.743 50.950 188.880 38.338 237.380 1,469.800 10.286 Period 4% 6% 8% 10% 12% 14% 20% Table II Future Value of a Series of $1.00 Cash Flows (Ordinary Annuity) (1 + "-1 1 2 3 1.000 2.040 3.122 4.247 5.416 1.000 2.060 3.184 4.375 5.637 1.000 2.080 3.246 4.506 5.867 1.000 2.100 3.310 4.641 6.105 1.000 2.120 3.374 4.779 6.353 1.000 2.140 3.440 4.921 6.610 1.000 2.220 3.640 5.368 7.442 4 5 6 8.115 6.633 7.898 9.214 10.583 12.006 6.975 8.394 9.898 11.491 13.181 7.336 8.923 10.637 12.488 14.487 7.716 9.487 11.436 13.580 15.938 10.089 12.300 8.536 10.730 13.233 16.085 19.337 9.930 12.916 16.499 20.799 25.959 14.776 17.549 7 8 9 10 11 12 13 14 15 13.486 15.026 16.627 18.292 14.972 16.870 18.882 21.015 23.276 36.778 79,058 154.762 16.646 18.977 21.495 24.215 27.152 45,762 113.283 259.057 18.531 21.385 24.523 27.976 31.773 57.276 164.496 442.597 20.665 24.133 28.029 32.39% 37.280 75.052 241.330 767.090 23.045 27.271 32.089 37.581 43.842 32.150 39.580 48.497 59.196 72.035 186.690 1,181.900 7,343.900 20.024 20 30 40 29.778 56.085 96.026 91.025 356.790 1,342.000 Table III Present Value of $1.00 1 (1 + " Perlod 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32% .926 .909 .877 .833 .893 797 .806 .650 1 2 2 3 3 4 .962 .925 .889 .855 822 .769 .592 .943 .890 .840 .792 .747 .857 .794 .826 .751 .862 .743 .641 .552 .769 .675 592 .847 .718 .609 ,516 .820 .672 .551 .694 .579 .482 .794 .630 .500 397 781 .610 477 .712 .758 .574 435 .329 .524 , 423 .455 350 735 .683 636 373 451 370 5 .691 .621 567 .519 476 437 402 341 .315 291 .269 .250 .564 .507 335 275 250 227 6 7 .790 .760 .630 .583 410 354 .207 .159 452 .705 .665 .627 592 .513 467 456 .400 .351 308 .370 .314 .266 225 279 233 .222 .179 .198 157 .189 .143 108 ,082 540 404 8 9 .731 .703 .178 .139 . 108 .085 .123 ,094 ,500 305 .263 .227 424 .386 .361 .322 194 .162 .144 .116 .125 .099 .676 .558 .463 .270 .191 ,073 ,062 10 11 650 .527 429 .350 .287 237 .162 135 .094 .079 066 303 .249 204 .167 .137 112 .092 .075 .062 .051 019 .003 .056 043 .047 ,036 257 208 .052 12 13 14 .625 .601 .577 497 469 442 397 368 340 .195 168 .145 125 .319 .290 263 .112 .093 .137 .116 099 .229 205 .182 .160 .033 076 .061 .049 .062 .050 ,039 .031 ,010 078 .066 .025 .040 .032 .025 007 .027 .021 .016 15 .555 417 315 .239 183 140 108 .040 .020 20 456 312 215 .149 104 073 .026 .014 .005 .004 084 .037 .007 .001 .033 .002 .001 30 40 .001 .308 208 ,051 .012 .003 .174 ,097 .099 .046 .067 022 .020 .006 .004 .001 .011 Table IV Present Value of Series of $1.00 Cash Flows 1 r (1 + r) 4- Period 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 25% 26% 28% 30% 0.962 1 2 0.943 1.833 0.877 1.647 0.909 1.736 2.487 3.170 1.886 2.775 3.630 0.833 1.528 2.106 0.896 1.690 2.402 3.037 3,606 3 0.820 1.492 2.042 2.494 0.806 1.457 1.981 0.862 1.605 2.246 2.798 3.274 0.800 1.440 1.952 2.673 3.465 2.322 2.914 0.847 1.566 2.174 2.690 3.127 3.498 0.926 1.783 2.577 3.312 3.993 4.623 5.206 5.747 6.247 4 2.589 2.991 2.404 2.745 0.794 1.424 1.923 2.320 2.635 2.885 3,083 5 0.781 1.392 1.868 2.241 2.532 2.759 2.937 3.076 4.452 6 4.111 3.791 4.355 4.868 5.335 3.685 4.039 2.362 2.689 2.961 3.161 3.329 3.463 7 4.564 3.433 3.889 4.288 4.639 4.946 5.216 5.453 3.326 3.605 3.837 3.812 4,078 8 3.020 3.242 3.421 3.566 3.682 4.344 4.607 9 5.759 4.303 3.184 5.242 6.002 6.733 7.435 8,111 8.760 9.385 9.986 10.563 11.118 3.241 3,366 3.465 3.544 10 4.494 4.656 3.269 3.335 0.769 1.361 1.816 2.168 2.436 2.643 2.802 2.925 3.019 3.092 3.147 3.190 3.223 3.249 3.268 3.316 3.332 3.333 4.212 4.917 5.582 6.210 6.802 7.360 7.887 8.384 8.853 9.295 9.712 11.470 13.765 15.046 11 4.968 5.328 5.650 5.938 6.194 6.424 6.628 6.811 6.145 6.495 6.814 7.103 7.367 7.606 12 13 3.387 2.864 3.167 3.416 3.619 3.786 3.923 4.035 4.127 4.203 4.265 4.315 4.460 4.534 4.544 6.710 7.139 7.536 7.904 8.244 8.559 9.818 11.258 11.925 4.031 4.192 4.327 4.439 4.533 4.611 4.675 4.833 5,029 5.197 5.342 5.468 5,575 5.660 5.842 6.002 6.142 3.427 4.793 4.910 5.008 5.092 3.776 3.851 3.912 3.962 14 15 3.571 3.656 3.725 3.780 3.824 3.859 3.964 3.995 3.999 3.606 3.666 3.695 3.726 3.808 3.842 3.846 3.459 3.483 4.001 4.110 20 8.514 6.623 5.929 30 40 13.590 17.292 19.793 9.427 9.779 7.469 8.055 8.244 7.003 7.105 6.177 6.234 5.353 5.517 5.548 4.870 4.979 4.997 4.160 4.166 3.546 3.569 3.571