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Assume that after further research and examination, marketing contributed only 50% to new sales in UK, Bulgaria, and Poland, but 100% to new sales in
Assume that after further research and examination, marketing contributed only 50% to new sales in UK, Bulgaria, and Poland, but 100% to new sales in Romania. Your supervisor has asked you to formulate a decision as to whether the company should continue the marketing campaigns.
Please explain how IRR, NPV, and payback were calculated.
F1 Impact factor | 100% | Estimate of contribution of marketing to new sales | ||
Year 0 | Year 1 | Year 2 | Year 3 | |
Sponsorship Related Sales | $ 500,000 | $ 750,000 | $ 1,000,000 | |
Romania Campaign | $ 2,500,000 | $ 2,500,000 | $ 2,500,000 | |
UK Campaign | $ 2,500,000 | $ 2,500,000 | ||
Bulgaria Campaign | $ 2,500,000 | $ 2,500,000 | ||
Poland Campaign | $ 2,500,000 | $ 2,500,000 | ||
Total revenues | $ 2,500,000 | $ 10,000,000 | $ 10,000,000 | |
COGS | $ (1,750,000) | $ (7,000,000) | $ (7,000,000) | |
Net Profit | $ 750,000 | $ 3,000,000 | $ 3,000,000 | |
Sponsorship cost | $ (250,000) | $ (850,000) | $ (850,000) | $ (850,000) |
Marketing activation cost | $ (250,000) | $ (600,000) | $ (750,000) | |
Total Costs | $ (250,000) | $ (1,100,000) | $ (1,450,000) | $ (1,600,000) |
EBIT | $ (250,000) | $ (350,000) | $ 1,550,000 | $ 1,400,000 |
Tax | $ 96,250 | $ 134,750 | $ (596,750) | $ (539,000) |
Net Profit (or loss) After Tax | $ (153,750) | $ (215,250) | $ 953,250 | $ 861,000 |
IRR | 132% | |||
NPV | $916,813 | |||
Payback (years) | 1.4 | |||
$ (369,000) | $ 584,250 | |||
0.387096774 | ||||
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