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Question "A company is considering entering into a new marketing campaign. If it engages in this...

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"A company is considering entering into a new marketing campaign. If it engages in this marketing campaign, it must pay $8,000 immediately and $6,000 each at the end of year 1 and year 2. The company believes its annual revenues due to the marketing campaign will be $10,000 at the end of year 1, $8,000 at the end of year 2, and $5,000 at the end of year 3. What is the annual equivalent worth of this marketing campaign over the next three years? The interest rate is 5% compounded annually."

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Answer #1
5.00%
Cash flows Year Discounted CF
           (8,000.00) 0 -8000.00
              4,000.00 1 3809.52
              2,000.00 2 1814.06
              5,000.00 3 4319.19

Present value of the savings = 1,942.77

PV = 1942.77

FV = 0

rate = 5%

N = 3

use PMT function in Excel

equivalent worth = 713.40

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