Question
Neptune Biometrics, despite its promising technology, is having difficulty generatingprofits. Having raised $85 million in an initial public offering of its stock early in the
Neptune Biometrics, despite its promising technology, is having difficulty generatingprofits. Having raised $85 million in an initial public offering of its stock early in the year,the company is poised to intro-duce a new product, an inexpensive fingerprint door lock.If Neptune engages in a promotional campaign costing $55 million this year, its annualafter-tax cash flow over the next five years will be only $1 million. If it does notundertake the campaign, it expects its after-tax cash flow to be $15 million annually forthe same period. Assuming the company has decided to stay in its chosen business, isthis campaign worthwhile when the discount rate is 8 percent? Why or why not?
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