Q6

William's hair salon is considering buying airtime for a television commercial to spread the word about their services and get clients during non-peak hours. Alternatively, they could invest in a cheaper newspaper ad campaign. They forecasted the following cash flows for the two options: Television: Investment of $6,250 would Television: Investment of $6,250 would increase profits by $5,700 in the 1 st year and $4,100 in the 2 nd year. Newspaper: Investment of $1,500 today would increase profits by $1,200 in the 1st year and $550 in the 2 nd year. The cost of capital is 20.00%. The cost of capital is 20.00%. a. By calculating the Net Present Value (NPV) of each investment, determine which option is better? a. Television b. Newspaper better? a. Television b. Newspaper b. By how much is the profit of the better investment greater than the other investment