Question 5 (20 marks)

Since you graduated from Yorkville University your career has skyrocketed. You are now designated as a high potential candidate within your organization. You send emails to all your professors at Yorkville University thanking them for their instruction.

You always worked hard and never cheated or plagiarized. Unfortunately, many other students are not doing as well as you in their careers. These students (such as Bill Sing) were never interested in reading the textbook (or buying it for that matter) or doing any homework. They would only look to go onto Course Hero to find answers to exam questions. What a terrible way to get an education.

Your company has now put you in charge of looking at investing in one of two new product launches. These projects involve expanding production in order to launch new products. The table below are the forecasted cashflows for each of these initiatives.

Year

Product A

Product B

0

-27,000

-72,000

1

16,000

30,000

2

16,000

30,000

3

3,000

15,000

4

3,000

200,000

5

1,000

5,000

Using a 22% discount rate, calculate the NPV, IRR and Payback for each of these initiatives. Which one would you recommend? The CFO is very concerned about short term liquidity and wants you to focus your recommendation on the Payback method. Would this change your recommendation?

You recently got a call from Bill Sing and he tells you that he cannot find a job. Bill regrets how he acted during his time at Yorkville University. He now understands that cheating and plagiarizing on his exams was not appropriate and hurt him in the long run. Using websites like Course Hero and Chegg are not an ethical way for students to conduct themselves. Bill has decided to go back to Yorkville University and has pledged to never cheat on an exam again.