You are in charge of marketing and advertising and are considering launching a new advertising campaign. The campaign - viewed as an operating expense - will cost you $250,000 to launch today and then $75,000 per year for the next 3 years. The campaign will increase sales by $25,000 each year for the next six years (longer than the campaign), with sales starting in year one at $425,000. After these six years, this advertising campaign will have no effect on future sales. Your Cost of Goods Sold is 65.00% of your sales which you expect will be the same for the additional sales. Your additional administrative expenses will be 4.00% of sales. Your additional level of working capital need will be 11.00% of yearly sales. Your tax rate is 32.00%. Your discount rate is 13.00%.

a. Should you go forward with the new advertising campaign? Why or Why Not? What is the NPV and IRR?

b. If the increased sales only last for the length of the ad campaign (3 years), should you go forward with the new advertising campaign? Why or Why Not? What is the NPV and IRR? c.

c. Assume sales continue for a total of 8 years, with the last three years showing yearly declines of $25K versus the prior year. Assume year 6 requires an additional $150K in SG&A. Should you go forward with the new advertising campaign? Why or Why Not? What is the NPV and IRR?