You are the CFO of Motor City Spirits Co. in Detroit. The owner is considering two new products, a Rye or a Bourbon, but can only support one. Both products require some upfront costs and have projected cash flows for 3 years.

a. Given that you typically use IRR as your decision criteria, which spirit should you produce?

b. You are somewhat concerned about the scale problem associated with IRR; how do you resolve that?

c. Lastly, you recall your MBA Finance professor really liked using NPV, so you consider NPV for both projects?

d. How do you resolve potential conflict between the different decision making criteria?

Annual cash flows: Year o Year 1 Year 2 Year 3 Rye Bourbon (906,250) $ (1,812,500) 337,500 $ 1,025,000 525,000 $ 812,500 475,000 $ 675,000 Discount rate 14%