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A manager is deciding between two marketing campaigns: Campaign A will generate net returns of $110,000...

A manager is deciding between two marketing campaigns:

  • Campaign A will generate net returns of $110,000 one year from now and $35,000 two years from now.
  • Campaign B will generate net returns of $40,000 two years from now and $110,000 four years from now.

The required rate of return is 7.00%.

a. What is the Discounted Cash Flow (DCF) of Campaign A?

Round to the nearest cent.

b. What is the Discounted Cash Flow (DCF) of Campaign B?

Round to the nearest cent.

c. Which campaign is economically better for the company?

Campaign A

Campaign B

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Answer #1

Campaign A will generate net returns of $110,000 one year from now and $35,000 two years from now.

Campaign B will generate net returns of $40,000 two years from now and $110,000 four years from now.

required rate of return r = 7.00%

a). discounted cash flow of campaign A is = 110000/1.07 + 35000/1.07^2 = $133374.09

b). discounted cash flow of campaign B is = 40000/1.07 + 110000/1.07^2 = $133461.44

Since discounted cash flow of Campaign B is more, it is economically better for company.

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