The director of marketing of your organization asks for your advice regarding sponsorship deals she is contemplating. She has to choose from the following: a 15-year sponsorship paying $100,000 per year, a 15-year sponsorship initially paying $75,000 per year and increasing 5% each year, and a 15-year sponsorship initially paying $45,000 per year but increasing 12% each year.
Case questions
1. Determine the present value of each year’s payment for each proposal, as well as the total present value of each proposal. For each proposal, compute two different outcomes, one with a discount rate of 5% and one with a discount rate of 10%.
2. Which proposal should the marketing director choose?
3. What questions about her firm and about the potential sponsors should she contemplate?
4. How would the decision be affected by the answers to the questions posed in #3? Fully explain your response.
