A manager is deciding between two marketing campaigns: Campaign A will generate net returns of $120,000 one year from now and $45,000 three years from now. Campaign B will generate net returns of $...

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A manager is deciding between two marketing campaigns: Campaign A will generate net returns of $120,000 one year from now and $45,000 three years from now. Campaign B will generate net returns of $...

A manager is deciding between two marketing campaigns:

Campaign A will generate net returns of $120,000 one year from now and $45,000 three years from now.

Campaign B will generate net returns of $45,000 two years from now and $120,000 five years from now.

The required rate of return is 6.00%.

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

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

c. Which campaign is economically better for the company?

business finance

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Answer 1

Answer #1

Campaign A
Year	Cashflows	PVF at 6%	Present value
1	120000	0.943396	113207.5
2	0	0.889996	0
3	45000	0.839619	37782.87
Present value of inflows			150990.4

Campaign B
Year	Cashflows	PVF at 6%	Present value
1	0	0.943396	0
2	45000	0.889996	40049.84
3	0	0.839619	0
4	0	0.792094	0
5	120000	0.747258	89670.98
Present value of inflows			129720.8

Campaign A is better

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Answer 2

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