A hospital anticipates that spending $100,000 on an adverting campaign will incr

Question

A hospital anticipates that spending $100,000 on an adverting campaign will increase bed days by 1,000. The marketing department anticipates that each additional bed day will yield $2,000 in additional revenue and will increase costs by $1,200. Should the hospital proceed with the advertising campaign? A hospital anticipates that spending $100,000 on an adverting campaign will increase bed days by 1,000. The marketing department anticipates that each additional bed day will yield $2,000 in additional revenue and will increase costs by $1,200. Should the hospital proceed with the advertising campaign?

Explanation / Answer

expected cash flows from the campaign=1000*2000-1000*1200=800000 which is higher than the cost of spending of 100000

so you should proceed with the advertising campaign

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