We are considering undertaking an advertising campaign that will increase sales by 10% each year but will cost $100,000 in only year 1. Should we pursue this using a 10% hurdle rate? What would be the economic advantage / disadvantage to pursue it?

Production Budget Current YearYear 1 Year 2 Year 3 Year 4 Year 5 Total Initial Investment Sales Price Unit Sales Total Sales COGS % COGS Depreciation Fixed Costs EBIT Taxes-40% Net Income Depreciation Operating Cash Flow (1,000,000) 30 30 30 30 30 40,000 48,400 53,240 58,564 64,420 Growth Rate 1,200,000 1,452,000 1,597,200 1,756,920 1,932,612 7,938,732 0.5 600,000 100,000 400,000 100,000 40,000 60,000 100,000 0.5 726,000 100,000 400,000 226,000 90,400 135,600 100,000 235,600 0.5 798,600 100,000 400,000 298,600 119,440 179,160 100,000 279,160 0.5 878,460 100,000 400,000 378,460 151,384 227,076 100,000 327,076 0.5 966,306 3,969,366 500,000 2,000,000 466,306 1,469,366 587,746 881,620 500,000 379,7841,381,620 100,000 400,000 186,522 279,784 100,000 (1,000,000)160 New PV of Cash Flows 10% Current PV of Cash Flows 10% 303 0 3 308372 3 (1,000,000) (1,000,000) (1,000,000) $145,455.00 $161,983.00 $177,010.00 $190,670.00 $203,088.00 (121,794) copy from first tab (878,206) Additional Benefit/ Cost