Question:
Parkes Book Comany's management is considering an advertising program that would required an initial expenditure of $165500 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $75000, with the associated expenses of $25000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 per cent each year.(Ignore company income taxes.)
Required
1. calculate the payback period for the advertising program
2. calculate the advertising program's net present value, assuming a required rate of return of 10 per cent.