Question
Ancala Corporation is considering investments in two new golf apparel lines for next season: golf hats and belts. Due to a funding constraint, these lines
Ancala Corporation is considering investments in two new golf apparel lines for next season: golf hats and belts. Due to a funding constraint, these lines are mutually exclusive. A summary of each projects estimated cash flows over its three-year life, as well as the IRR and NPV of each, are outlined below. The CFO of the firm has decided to manufacture the belts; however, the CEO is questioning this decision given that the IRR is higher for manufacturing hats. Explain to the CEO why the IRRs and NPVs of the belt and hat projects disagree? Is the CFOs decision correct?
| Year | Golf Belts | Golf Hats | ||
| 0 | -$1,000 | -$500 | ||
| 1 | 1000 | 500 | ||
| 2 | 500 | 300 | ||
| 3 | 500 | 300 | ||
| NPV | $697.97 | $427.87 | ||
| IRR | 54% | 61% |
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Finance Society And Sustainability
Authors: Nick Silver
1st Edition
1137560606, 978-1137560605
