capital budgeting theory

Jarmon Paint Co. is aggressively seeking to slowly develop a presence in the art supplies market. Right now it is considering two projects. One is to produce a texture gesso paint that can be used as an undercoat for pastel artists. This product would incorporate a new technology that can not be patented. It would be initially very profitable but would likely attract competition forcing price declines and profit declines fairly quickly. The other project would be the introduction of a new line of acrylic-based pastels that are colorful but have a show-through quality that allows any underlying color to play a greater role in the final presentation. This project would be slow to grow into profitability because it would take time for artists to learn how to exploit this characteristic. Below are the cash flows of the two projects and other data assuming a cost of capital of 8.00%. Year Gesso Pastel -26,927 3,844 5,491 7,844 0 -28,000 1 13,000 11,700 3 10,530 2 1 13,000 2 11,700 3 10,530 4 9,477 5 8,529 6 7,676 3,844 5,491 7,844 11,206 16,008 22,868 24.41% 18.94% 21,109 IRR 31.70% MIRR 18.17% NPV 20,035 Question 8 (1 point) ho Question 8 (1 point) Based on the above data, you would choose, Gesso. Pastel Neither. Referring to the previous questions, it has come to the CEO's attention that the cost of money is 13%, not 8.00%. Therefore the values of the criteria have changed. Pastel -26,927 3,844 5,491 7,844 11,206 16,008 22,868 24.41% Year Gesso 0 28,000 13,000 11,700 10,530 9,477 8,529 7,676 0 2 3 4 6 IRR 31.70% 22,868 24.41% 20.54% 12,757 6 7,676 IRR 31.70% MIRR 20.95% NPV 14,094 Question 9 (1 point) Based on the data above, you would choose, Gesso Pastel Neither