Question
XYZ Ltd. is considering undertaking a marketing campaign which will involve an annual advertisement expenditure of $20 million at the end of the next five
XYZ Ltd. is considering undertaking a marketing campaign which will involve an annual advertisement expenditure of $20 million at the end of the next five years. XYZ expects that this marketing campaign will create brand recognition of its products among customers. It is anticipated that this intangible asset, called "brand recognition", will raise XYZ's net profit by $30 million per year, starting in year 6 and this incremental amount of net profit of $30 million will continue into the indefinite future. Assume that the required annual discount rate of the marketing campaign is 10%.
Calculate the current implied value of "brand recognition" asset to XYZ Ltd.
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