Read the scenarios below and select one to review and analyze. Determine the proposal's appropriateness and economic viability. For all scenarios, assume spending occurs on the first day of each year and benefits or savings occurs on the last day. Assume the discount rate or weighted average cost of capital is 10%. Ignore taxes and depreciation.
Proposal C: New Advertising Program
A company wants to invest in a new advertising program. Using the NPV method of capital budgeting, determine the proposal's appropriateness and economic viability with the following information:
• The new program will increase current sales, $10 million, by 20%.
• The new program will have a profit margin is 5% of sales.
• The new program will have a 3-year effect.
• The new program will cost the company $200,000 in the first year.