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Please solve this ABC, a seller of TVs, is considering launching an advertising campaign for its latest advanced product, Topty ABC plans to spend $3
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ABC, a seller of TVs, is considering launching an advertising campaign for its latest advanced product, Topty ABC plans to spend $3 million on advertisements for the campaign this year (year 0 ) and no advertising expenditures next year (year 1) and the following year (year 2). The ads are expected to boost sales of the new product by $7 million next year (year 1 ) and $4 million the following year (Year 2). In addition, the company expects the new consumers who try the new product will be willing to try ABC 's other products. As a result, sales of other products are expected to rise by $2 million next year (year 1 ) and the following year (year 2). The cost of goods sold this year (year 0 ) is 2 million, 5 million next year (year 1), and 3 million in the following year (year 2). The company's other projects are very profitable, and the company's marginal corporate tax rate is 35%. What is the Unlevered net income associated with the advertising campaign in year 1 and year 2? What are the free cash flows in year 1 and year 2 ? Assume there are no CCA, NWC, or CapEx requirements/amountsStep by Step Solution
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