There, the task is to forecast the additional company revenues, and the additional company expenses resulting from the promotion. Here I will mention only a few broad concepts that directly impact how actuarial models are applied to these analyses. For further information on corporate finance, I have included two book references at the end of this article. These cash flows must then be discounted to consider the income that is lost due to the spending of company capital on the project rather than investing the capital in the financial markets. This model states that the selected discount rate must consider the systematic risk of the project.
Riskier projects require a higher discount rate to compensate for a more uncertain profit.
Discount rates dictated by CAPM change as the condition of the financial markets change. HB and Carl meet to identify the individual influences on profitability of promotions. First they identify marketing costs. These costs may be fixed or variable depending on the size or success of the promotion. Second they identify the additional company profitability attributable to the promotion.