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Problem - Net Present Value
Panama Insurance Company's management is considering an advertising program that would require an initial expenditure of P165,500 and bring in additional sales over the next five years. The cost of advertising is immediately recognized as expense. The projected additional sales revenue in Year 1 is P75,000, with associated expenses of P25,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Panama Insurance Company's tax rate is 40 percent.
The present value of 1 at 10 percent, end of each period:
Periods
Present value Factory
1
0.90909
2
0.82645
3
0.75131
4
0.68301
5
0.62092
Required - Find the net present value of the advertising program?
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