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If Corporation Z spends $1M in advertising in year 0, then the sales of ice cream will rise $3M in Year 1. Sales will only
If Corporation Z spends $1M in advertising in year 0, then the sales of ice cream will rise $3M in Year 1. Sales will only go up for Year 1 and no more afterward. The cost of this additional ice cream in Year 1 will be $1.2M. If tax rate is 30% and cost of capital is 10%, should this advertising be done? Hint: Advertising cost is tax deductible in the same year in which it is incurred.
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