Appendix A

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.) Answer is complete but not entirely correct. 1. 3 years Payback period Net present value 2. S (6.439)