Question
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
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?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
Intermediate Financial Management
Authors: Eugene F Brigham, Phillip R Daves
9th Edition
032431986X, 9780324319866
