Insurance Company’s Management Assignment
Allegience Insurance Company’s management is considering an
advertising program that would require an initial expenditure of $193,635 and bring in additional sales over the next five years. The projected additional sales revenue in year 1 is $92,000, with associated expenses of $33,500. The additional sales revenue and expenses from the advertising program are projected to increase by 10 percent each year. Allegience’s tax rate is 40 percent. (Hint: The $193,635 advertising cost is an expense.)
Table III Present Value of $1.00 1 (1 Perlod 4% 6% 8% 10% 12% 14% 16% 18% 20% 22% 24% 26% 28% 30% 32% 909 893 1 962 943 926 877 .862 847 833 820 806 794 781 769 758 2 925 890 857 826 797 769 743 718 694 672 650 630 610 592 574 3 889 840 794 751 712 675 641 .609 579 551 524 500 477 455 435 4 855 792 735 683 636 592 552 516 482 451 423 397 373 350 329 5 822 747 681 .621 567 519 476 437 402 370 341 315 291 269 250 6 790 705 630 564 507 456 410 370 335 303 275 250 227 207 189 7 760 665 583 513 452 400 354 314 279 249 222 198 178 159 143 305 8 731 540 467 404 351 266 233 204 .179 157 139 123 108 627 703 592 500 361 308 263 225 194 167 144 125 094 082 424 108 10 676 558 463 386 322 270 227 191 162 137 116 099 085 073 062 066 .056 429 162 135 11 650 527 350 287 237 .195 112 094 079 047 12 397 319 168 092 076 052 625 497 257 208 137 112 062 043 036 050 027 13 601 469 368 290 229 182 145 116 093 075 061 040 033 577 340 078 14 442 263 205 160 125 099 062 049 039 032 025 021 15 555 417 315 239 183 140 108 084 065 051 040 031 025 020 016 20 456 312 215 149 104 073 051 037 026 019 014 010 007 005 .004 30 308 174 099 057 033 020 012 007 004 003 002 .001 001 40 208 097 046 022 011 005 003 001 001. .
