Prompt: Below is an email from your boss to you (a new Project Manager): Welcome to project management at goop! As a new PM, we could use your help in deciding which of the following three projects you would recommend to the PMO early next week. Attached is more information on each project including expected cash flows. Keep in mind this information came from three different teams and all projects seem to have excluded inflation which is estimated to be 3.5% going forward. The finance group has updated us that the hurdle rate (WACC) for the year will be 12%. We are becoming more systematized on risk management. Can you jumpstart the work for these projects by creating a risk register for the top 2-3 risks for each project (including a proposed response to each risk)? Please provide us with the following for each project: 1. IRR and NPV 2. Major risks and proposed response 3. Your final recommendation Please be sure to document your assumptions and provide your work so it is easy to follow during our steering committee meeting. Project 1: Innovative Soap Powder Development goop is excited to venture into a new soap powder formulation that promises a revolutionary cleaning experience. The development is slated to span 3 years, with an annual R&D expenditure of $6 million. If things proceed favorably, goop plans to launch the product in Year 4, incurring an additional cost of $5.5 million. goop's marketing team believes that post-launch, there's a 60% likelihood that the product will resonate with consumers and yield annual profits of $15 million a year for 5 years. However, if the market doesn't receive it well, the profit is projected to be $2 million per year for 5 years. Projected cash flows: Year 1-3: Development cost of -$6M annually. Year 4: Launch cost of -$5.5M. Year 5-9: O Optimistic Scenario: Gross profits of $15M annually for five years. O Pessimistic Scenario: Gross profits of $2M annually for five years.Project 2: Outsource Soap Powder Development To mitigate the risks related to the new soap powder development, goop is considering a collaboration with LabX Innovations, a specialized laboratory with a track record of swift and effective R&D. The development timeline will compress to be just 1 year with a development fee of $25 million due at the end of year 1. Launch costs will be the same, but by getting to market faster, the commercial success increases to 75%. The product is still expected to have 5 years of useful life in the market. Projected cash flows: - Year 1: Development cost of -$25M. - Year 2: Launch cost of -$5.5M. Year3-7: o Optimistic Scenario: Gross profits of $15M annually for five years. 0 Pessimistic Scena rio: Gross profits of $2M annually for five yea rs. Project 3: Market Research for West Coast Expansion Separate from venturing into a new product, goop is contemplating strengthening its geographical footprint by partnering with boutique retailers and high-end grocery stores on the West Coast. However, before proceeding with the expansion, goop will conduct a market research study to clarify the market's potential reception and to better target retail and grocery partners. The report, available right before year 1 begins and will guide the decision to proceed with the expansion. Projected cash flows: Without the market research report, the project will expand slowly. - Year 1-3: gross profits of -4M annually after market development costs. - Year 4-9: Gross profits of $6M annually for 6 years. With the market research report, the expansion project can happen quickly: - Year 0: pay for the market research study $5M. - If the study indicates a favorable market (which is 75% likely), 0 Years 1-3 net profits of -1M annually for 3 years. 0 Years 4-9 of $8M annually for 6 years - If the study indicates an unfavorable market, the project will not proceed as it would be NPV negative. Note: for this question, only calculate iRR for without the report and with the report that indicates a favorable market. it is not possible to calculate \"it? if the report indicates the market is unattractive as there will only be one cash flow. However, NPV can be calculated for all scenarios including for the overall project with the report