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Parkers Company is considering a new social media advertising program that would require an initial expenditure...

Parkers Company is considering a new social media advertising program that would require an initial expenditure of $1,650,000. The program is expected to bring in additional sales over the next three years. The projected additional sales revenue in year 1 is $750,000, with associated expenses of

$25,000. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year.

Required

  1. Calculate the net present value (assume a 8% discount rate) of the proposed advertising program.
  1. Based on the calculations above, should the proposed advertising program go ahead? What limitations should managers be aware of when interpreting the results of common capital investment analysis techniques? Discuss.
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