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Discounted Cash Flow

Times are tough for Auger Biotech. Having raises $85 million in an initial public offering of its stock early in the year, the company is poised to launch its product. If Auger engages in a promotional campaign costing $60 million this year, its annual after-tax cash flow over the next five years will be only $700,000. If it does not undertake the campaign, it expects its after-tax cash flow to be minus $18 million annually for the same period. Assuming the company has decided to stay in its chose business, is this campaign worthwhile when the discount rate is 10%? Why or why not?

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Solution Summary

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