Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount...

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Finance

Consider two mutually exclusive new product launch projects thatNagano Golf is considering. Assume the discount rate for bothproducts is 12 percent.

Project A: Nagano NP-30.
   Professional clubs that will take an initial investment of$700,000 at Time 0.
   Next five years (Years 1–5) of sales will generate a consistentcash flow of $300,000 per year.
   Introduction of new product at Year 6 will terminate furthercash flows from this project.

Project B: Nagano NX-20.
   High-end amateur clubs that will take an initial investment of$850,000 at Time 0.

Cash flow at Year 1 is $250,000. In each subsequent year cashflow will grow at 10 percent per year.
   Introduction of new product at Year 6 will terminate furthercash flows from this project.

Year NP-30 NX-20
0 –$ 700,000 –$ 850,000
1 300,000 250,000
2 300,000 275,000
3 300,000 302,500
4 300,000 332,750
5 300,000 366,025

Complete the following table: (Do not roundintermediate calculations. Round your "PI" answers to 3 decimalplaces, e.g., 32.161, and other answers to 2 decimal places, e.g.,32.16. Enter your IRR answers as a percent.)

NP-30 NX-20
  Payback years years
  IRR % %
  PI
  NPV $ $

Answer & Explanation Solved by verified expert

3.7 Ratings (539 Votes)

NP30 Year Cash flow stream Cumulative cash flow 0 700000 700000 1 300000 400000 2 300000 100000 3 300000 200000 4 300000 500000 5 300000 800000 Payback period is the time by which undiscounted cashflow cover the intial investment outlay this is happening between year 2 and 3 therefore by interpolation payback period 2 0100000200000100000 233 Years NX20 Year Cash flow stream Cumulative cash flow 0 850000 850000 1 250000 600000 2 275000 325000 3 302500 22500 4 332750 310250 5 366025 676275 Payback See Answer

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Transcribed Image Text

Consider two mutually exclusive new product launch projects thatNagano Golf is considering. Assume the discount rate for bothproducts is 12 percent. Project A:Nagano NP-30. Professional clubs that will take an initial investment of$700,000 at Time 0. Next five years (Years 1–5) of sales will generate a consistentcash flow of $300,000 per year. Introduction of new product at Year 6 will terminate furthercash flows from this project. Project B:Nagano NX-20. High-end amateur clubs that will take an initial investment of$850,000 at Time 0. Cash flow at Year 1 is $250,000. In each subsequent year cashflow will grow at 10 percent per year. Introduction of new product at Year 6 will terminate furthercash flows from this project. YearNP-30NX-200–$700,000–$850,0001300,000250,0002300,000275,0003300,000302,5004300,000332,7505300,000366,025 Complete the following table: (Do not roundintermediate calculations. Round your "PI" answers to 3 decimalplaces, e.g., 32.161, and other answers to 2 decimal places, e.g.,32.16. Enter your IRR answers as a percent.) NP-30NX-20 Paybackyearsyears IRR%% PI NPV$$

Project A:	Nagano NP-30.
	Professional clubs that will take an initial investment of$700,000 at Time 0.
	Next five years (Years 1–5) of sales will generate a consistentcash flow of $300,000 per year.
	Introduction of new product at Year 6 will terminate furthercash flows from this project.

Project B:	Nagano NX-20.
	High-end amateur clubs that will take an initial investment of$850,000 at Time 0.
	Cash flow at Year 1 is $250,000. In each subsequent year cashflow will grow at 10 percent per year.
	Introduction of new product at Year 6 will terminate furthercash flows from this project.

Year	NP-30		NX-20
0	–$	700,000	–$	850,000
1		300,000		250,000
2		300,000		275,000
3		300,000		302,500
4		300,000		332,750
5		300,000		366,025