Question: The Aphrodite company is a manufacture of perfume. The company is about to launch a new line of products. The marketing department has to decide whether to use an aggressive or regular campaign. Aggressive campaign Initial cost - (production of commercial advertisement using a top model): $400,000 First month profit: $20,000 Monthly growth in profit (month 2-12): 10% After 12 months the company is going to launch a new line of products and it is expected that the monthly profits from the current line would be $20,000 forever. Regular Campaign Initial cost (using a less famous model) $150,000 First month profit: $10,000
Monthly growth in profits (month 2-12): 6% Monthly profit (month 13-∞ ): $20,000
a) The cost of capital is 7%. Calculate the NPV of each campaign and decide which campaign should the company undertake.
b) The manager of the company believes that due to the recession expected next year, the profit figures for the aggressive campaign (both first month profit, and 2-12 profit growth) are too optimistic.
Use data table in order to show the differential NPV as a function of first month payment and growth rate of the aggressive campaign.