Question

Hasbro is considering a new high profile marketing campaign to aggressively market their flagship Monopoly game. The marketing department would spend an extra 1.0 million per year for the next five years to increase TV commercials and print ads featuring Monopoly. The primary Monopoly factory would be expanded as a cost of $5.5 million. Assume that the factory expansion would be completed in the first year of the campaign. The marketing department estimates that the campaign will increase Monopoly sales such that operating cash flow increases by 2.5 million per year (not counting the extra marketing cost or cost of factory expansion). Hasbro uses a discount rate of 15% to evaluate projects such as this. Use five year time horizon, and assume no salvage value of the factory expansion at the end of this period.

Answer 1

sales will start after expansion of factory ,

Year	0	1	2	3	4	5
Cost of expansion	($5,500,000)
Marketing for ist year	($1,000,000)
Total cost	($6,500,000)
Increase in Operating Cash		$2,500,000	$2,500,000	$2,500,000	$2,500,000	$2,500,000
Marketing cost		($1,000,000)	($1,000,000)	($1,000,000)	($1,000,000)	($1,000,000)
Salvage value						$0
Net cash flow	($6,500,000)	$1,500,000	$1,500,000	$1,500,000	$1,500,000	$1,500,000
Assumption
Tax	0%
Depreciation	0	not given
Discount rate	15%
NPV	($1,471,767.35)	PV(15%,5,-1500000)-6500000