Suppose that a hotel’s marketing team has a scheduled meeting to review a market campaign proposal that could increase revenue substantially. Based on the details below, determine the following: (a) payback period; (b) net present value; (c) internal rate of return; (d) whether the CMO would agree to forward the proposal to the CEO.
Initial marketing and other costs = Year 0: $125 million
Annual marketing and others costs = Years 1-5: 0.5% constant year-over-year increase per initial costs
Revenues = Year 1: $50 million; Year 2: $60 million; Years 3: $80 million; Year 4: $120 million; Year 5: $130 million
Discount rate = 4.45%