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CompU is looking at starting a major advertising campaign to further expand their business. Based on preliminary estimates the advertising campaign will cost $100000 and will increase revenue by

CompU is looking at starting a major advertising campaign to further expand their business. Based on preliminary estimates, the advertising campaign will cost $100,000 and will increase revenue by $80,000 per year for the next 5 years. The increased expenses excluding depreciation will be $35,000 per year. Inventory will increase by $25,000, accounts receivable will increase by $20,000, accounts payable will increase by $20,000, and accruals will increase by $15,000. The company is in the 40% tax bracket. The ad campaign will be capitalized and depreciated using a 5-year MACRS recovery schedule. a. Calculate the initial investment associated with the advertising campaign. b. Calculate the annual operating cash flows for the project.

Jun 19 2020 View more View Less

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