__PRESENT

Allegience Insurance Company's management is considering an advertising program that would require an initial expenditure of $195,290 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $93,000, with associated expenses of $34,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience's tax rate is 30 percent. (Hint: The $195,290 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 calculations and final answer to the nearest whole dollar.) years 1. Payback period 2. Net present value Table 1 Future Value of $1.00(1 + r)" Period 4% 6% 8% 10% 12% 14% 20% 1 1.040 1.060 1.050 1.100 1.120 1.140 1.200 2 1.082 1.124 1.166 1.210 1.254 1.300 1.440 3 1.125 1.191 1.260 1.331 1.405 1.482 1.728 4 1.170 1.263 1.361 1.464 1.574 1.689 2.074 5 1.217 1.338 1.469 1.611 1.762 1.925 2.488 6 1.265 1.419 1.587 1.772 1.974 2.195 2.986 7 1.316 1.504 1.714 1.949 2.211 2.502 3.583 S 1.369 1.594 1.851 2.144 2.476 2.853 4.300 9 1.423 1.690 1.999 2.359 2.773 3.252 5.160 10 1.450 1.791 2.159 2.594 3.106 3.707 6.192 11 1.540 1.89S 2.332 2.853 3.479 4.226 7.430 12 1.601 2.012 2.518 3.139 3.896 4.SIS 8.916 13 1.665 2.133 2.720 3.452 4.364 5.492 10.699 14 1.732 2.261 2.937 3.798 4.887 6.261 12.839 15 1.S01 2.397 3.172 4.177 5.474 7.138 15.407 20 2.191 3.207 4.661 6.728 9.646 13.743 38.338 30 3.243 5.744 10.063 17.450 29.960 50.950 237.350 40 4.S01 10.256 21.725 45.260 93.051 ISS.SSO 1,469.500 Table II (1 + r)" - 1 Future Value of a Series of $1.00 Cash Flows (Ordinary Annuity) r Period 4% 6% 8% 10% 12% 14% 20% 1 1.000 1.000 1.000 2.040 1.000 2.080 1.000 2.100 1.000 2.120 1.000 2.140 2 2.060 2.220 3 3.122 3.184 3.246 3.310 3.374 3.440 3.640 4 4.247 4.375 4.506 4.641 4.779 4.921 5.368 5 5.416 5.637 5.867 6.105 6.353 6.610 7.442 6 6.633 6.975 7.336 7.716 8.115 8.536 9.930 7 7.898 8.394 8.923 9.487 10.089 10.730 12.916 8 9.214 9.898 10.637 11.436 12.300 13.233 16.499 20.799 9 10.583 11.491 12.488 13.580 14.776 16.085 10 12.006 13.181 14.487 15.938 17.549 19.337 25.959 11 13.486 14.972 16.646 18.531 20.655 23.045 32.150 12 15.026 16.870 18.977 21.385 24.133 27.271 39.580 13 16.627 18.882 21.495 28.029 32.089 48.497 24.523 27.976 14 18.292 21.015 24.215 32.393 37.581 59.196 15 20.024 23.276 27.152 31.773 37.280 43.842 72.035 20 29.778 36.778 45.762 57.276 75.052 91.025 186.690 30 56.085 79.058 113.283 164.496 241.330 356.790 1.181.900 40 95.026 154.762 259.057 442.597 767.090 1,342.000 7,343.900 Table III 1 Present Value of $1.00 (1 + r)" Period 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32% 1 .962 .943 .926 909 .893 .877 .862 .847 .833 .820 .806 .794 .781 .769 .758 2. .925 .890 .857 .826 .797 .769 .743 .718 .694 .672 .650 .630 .610 .592 .574 3 .889 .840 .794 .751 .712 .675 .641 .609 .579 .551 .524 .500 .477 .455 .435 4 .855 .792 .735 .683 .636 .592 .552 .516 .482 .451 .423 .397 .373 .350 .329 5 .822 .747 .681 .621 .567 .519 .476 437 .402 .370 .341 .315 .291 .269 .250 6 .790 .705 .630 .564 .507 .456 410 .370 .335 .303 .275 .250 .227 .207 .189 .143 7 .760 .665 .583 .513 452 .400 .354 .314 .279 .249 .222 .198 .178 .159 8 .731 .627 .467 .404 .266 .233 .204 .179 .157 .139 .123 .108 .540 .500 .351 .308 .305 .263 9 .703 .592 .424 .361 .225 .194 .167 .144 .125 .108 .094 .082 10 .676 .558 463 .386 .322 .270 .227 191 .162 .137 .116 .099 .085 .073 .062 11 .650 .527 .429 .350 .287 .237 .195 .162 .135 .112 .094 .079 .066 .056 .047 12 .625 .497 .397 .319 .257 .208 .168 .137 .112 .092 .076 .062 .052 .043 .036 13 .601 .469 .368 .290 .229 .182 .145 .116 .093 .075 .061 .050 .040 .033 .027 14 .577 .442 .340 .263 .205 .160 .125 .099 .078 .062 .049 .039 .032 .025 .021 15 .555 417 .315 .239 .183 .140 .108 .084 .065 .051 .040 .031 .025 .020 .016 20 .456 .312 .215 .149 .104 .073 .051 .037 .026 .019 .014 .010 .007 .005 .004 30 .308 .174 .099 .057 .033 .020 2012 .007 .004 .003 .002 .001 .001 40 .208 .097 .046 .022 .011 .005 .003 .001 .001 Table IV Present Value of Series of $1.00 Cash Flows *(1-a+m) (1 + gon) Period 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 25% 26% 28% 30% 1 0.769 2 1.361 0.962 1.886 2.775 3.630 4.452 3 0.943 1.833 2.673 3.465 4.212 0.781 1.392 1.868 0.926 0.909 0.893 0.877 0.862 0.847 0.533 0.820 0.806 0.500 0.794 1.783 1.736 1.690 1.647 1.605 1.566 1.528 1.492 1.457 1.440 1.424 2.577 2.487 2.402 2.322 2.246 2.174 2.106 2.042 1.981 1.952 1.923 3.312 3.170 3.037 2.914 2.798 2.690 2.589 2.494 2.404 2.362 2.320 3.993 3.791 3.605 3.433 3.274 3.127 2.991 2.864 2.745 2.689 2.635 1.816 2.166 4 2.241 2.532 5 2.436 6 5.242 4.917 3.498 2.885 2.759 2.643 7 5.582 2.802 6.002 6.733 7.435 8.111 3.812 4.078 S 4.623 4.355 4.111 5.206 4.868 4.564 5.747 5.335 4.968 6.247 5.759 5.328 6.710 6.145 5.650 3.889 3.685 4.288 4.039 4.639 4.344 4.946 4.607 5.216 4.833 6.210 6.802 3.167 3.416 3.619 3.786 3.326 3.605 3.837 4.031 4.192 3.020 2.951 3.242 3.161 3.421 3.329 3.566 3.463 3.682 3.571 3.083 3.241 3.366 3.465 2.937 3.076 3.184 3.269 2.925 3.019 9 10 4.303 4.494 7.360 3.923 3.092 11 4.035 3.776 3.335 3.147 3.544 3.606 4.127 3.387 3.190 12 13 8.760 9.385 9.986 10.563 11.118 7.887 8.384 8.853 9.295 9.712 7.139 7.536 7.904 8.244 8.559 6.495 6.814 7.103 7.367 7.606 5.938 6.194 6.424 6.628 6.811 5.453 5.029 4.656 4.327 5.660 5.197 4.793 4.439 5.842 5.342 4.910 4.533 6.002 5.468 5.008 4.611 6.142 5.575 5.092 4.675 3.427 3.656 3.725 3.750 3.824 3.859 3.223 3.851 3.912 3.962 4.001 4.203 4.265 4.315 14 3.656 3.695 3.726 3.459 3.249 3.268 15 3.483 13.590 4.870 4.110 3.316 20 30 11.470 13.765 15.046 17.292 9.818 8.514 11.258 9.427 11.925 9.779 7.469 8.055 6.623 7.003 7.105 5.929 6.177 6.234 5.353 5.517 5.548 4.979 4.997 4.460 4.534 4.544 4.160 4.166 3.954 3.995 3.999 3.S0S 3.842 3.846 3.546 3.569 3.571 3.332 3.333 40 19.793 8.244