Question $2$

Your newly appointed CEO has shown strong support for innovative initiatives and has tasked you with evaluating the potential of a specific $3-$year project. Below

are the details you've gathered thus far:

You were also notified that historically, projects within this specific division have been discounted at a required return of $20\%$ to accommodate for the associated

risk. In particular, the CEO requested the following metrics for this project. For the $$900,000$ assets required for the project, assume straight$-$line depreciation over

the $3-$year period.

a$.$ Payback Period and the Discounted Payback Period. Are the conclusions different for these metrics? If so$,$ why?

b$.$ Internal Rate of Return

c$.$ NPV

d$.$ What do the values you computed in $($b$)$ and $($c$)$ mean?

Upon completing the aforementioned calculations, you received a memo from the Marketing departments indicating the potential entry of new competitors into the

market, directly challenging the product to be manufactured under this project. The memo further highlights that if new companies successfully penetrate the

market, anticipated sales figures would decrease by $15\%,20\%,$ and $25\%$ in years $1,2,$ and $3,$ respectively.

e$.$ Update the measures computed above in $($a$)-($c$).$

f$.$ Given your answers to the questions above, what would you recommend your CEO do$?$ Additionally, what further data and analysis would you deem

necessary to gather and evaluate before reaching a conclusive decision?