Problem:
Using net present value, determine the proposal's appropriateness and economic viability.
Prepare a report explaining your calculations and conclusions. Answer the following in your report:
o Explain the effect of a higher or lower cost of capital on a firm's long-term financial decisions.
o Analyze the use of capital budgeting techniques in strategic financial management.
Format your report according to APA standards.
Proposal: 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.