OCP's R&D department has been keeping busy as usual. They have two potential kitchen products almost ready for market; a microwave and a robot chef.

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OCP's R&D department has been keeping busy as usual. They have two potential kitchen products almost ready for market; a microwave and a robot chef.

Historical R&D expenditures thus far have been expensed and are considered as 'sunk costs'. Therefore, the Year 0 cash flow, 'initial investment', will be spent tomorrow for whichever project you approve. The Year 0 cash flow is mainly to produce the initial product inventories and for pre-launch marketing campaigns.

OCP's kitchen division only has enough staff to launch one of these products this year. Whichever product is not launched will be abandoned permanently.  

The relevant discount rate is 12.5% for both projects.

For the Microwave project, calculate:

• NPV
   
• IRR
   
• PI
   
• Payback period
   

For the Robot project, calculate:

• NPV
   
• IRR
   
• PI
   
• Payback period

 

OCP's Kitchen Gadgets Cash Flow Summary Year Discount Rate 0 1 2 3 Microwave Robot ($48,000.00) $25,000.00 ($98,000.00) $75,000.00 $62,500.00 $115,000.00 $25,000.00 12.50%