Investment in the new marketing campaign

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Watson Corporation plans to invest in a new marketing campaign. The cost of the campaign is $675,000. If the investment is made, Watson expects additional sales for the next four years, resulting in the following additional cash flows to the firm:

Year 1: CF = $245,000
Year 2: CF = $265,000
Year 3: CF = $280,000
Year 4: CF = $285,000

Watson requires projects of this type to provide a 13% return and meet the target AAR of 30%. The firm's maximum payback period is 2.25 years.

Calculate each of the following for the firm:

  • Payback period
  • Average rate of return
  • Net present value
  • Benefit-cost ratio
  • Internal rate of return

For each of the above figures of merit, explain whether the firm should accept or reject the project. Given the results of your analysis, should Watson Corporation make the investment in the new marketing campaign? Why or why not?

Reference no: EM13847953

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