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Problem 5-19 Comparing Investment Criteria Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for both products
Problem 5-19 Comparing Investment Criteria
Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for both products is 13 percent. |
Project A: | Nagano NP-30. |
Professional clubs that will take an initial investment of $640,000 at Time 0. | |
Next five years (Years 15) of sales will generate a consistent cash flow of $275,000 per year. | |
Introduction of new product at Year 6 will terminate further cash flows from this project. |
Project B: | Nagano NX-20. |
High-end amateur clubs that will take an initial investment of $650,000 at Time 0. | |
Cash flow at Year 1 is $190,000. In each subsequent year cash flow will grow at 10 percent per year. | |
Introduction of new product at Year 6 will terminate further cash flows from this project. |
Year | NP-30 | NX-20 | ||||
0 | $ | 640,000 | $ | 650,000 | ||
1 | 275,000 | 190,000 | ||||
2 | 275,000 | 209,000 | ||||
3 | 275,000 | 229,900 | ||||
4 | 275,000 | 252,890 | ||||
5 | 275,000 | 278,179 | ||||
Complete the following table: (Do not round intermediate calculations. Round your "PI" answers to 3 decimal places, e.g., 32.161, and other answers to 2 decimal places, e.g., 32.16. Enter your IRR answers as a percent.) |
NP-30 | NX-20 | ||||
Payback | years | years | |||
IRR | % | % | |||
PI | |||||
NPV | $ | $ |
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