Question
Question 4 Capital Investment Decisions (14 Marks) Zara Ltds management is considering an advertising program that would require an initial expenditure of $136,500 and bring
Question 4 Capital Investment Decisions (14 Marks) Zara Ltds management is considering an advertising program that would require an initial expenditure of $136,500 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $80,000, with associated expenses of $15,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 per cent each year. Ignore company income taxes. Present value tables are provided at the end of the exam. Required: a. Calculate the payback period for the advertising program. 2 marks b. Calculate the advertising program's net present value, assuming a required rate of return of 9 per cent.
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