How much value does the marketing campaign add to project

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Reference no: EM132056331

RSM Co is considering a project which will require the purchase of $2.7 million in new equipment. The equipment will be depreciated straight-line to a book value of $1 million over the 5-year life of the project. Annual sales from this project are estimated at $2,950,000. The variable cost is 40% of the annual sales and there is an annual fixed cost of $200,000. Sway's Back Store will sell the equipment at the end of the project for 30% of its original cost. New net working capital equal to 15% of sales will be required to support the project. All of the new net working capital will be recouped at the end of the project. The firm’s WACC is 12% per year. The tax rate is 40%.

The company launches the project based on a marketing campaign one year before the project starts. The campaign costed $200,000. If the company launch the project without the campaign, there is only 50% chance that the project turns out to be expected. There is also 50% chance that the project would fail the market and leads to a NPV of - $2,450,000. How much value does the marketing campaign add to project?

Can you answer in a "step" format and not in excel or a chart?

Reference no: EM132056331

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