Consider two mutually exclusive new product launch projects that Nagano Golf is considering. The NX-20 project...

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Finance

Consider two mutually exclusive new product launch projects thatNagano Golf is considering. The NX-20 project is a proposedhigh-end amateur clubs that requires an initial investment of$420,000 at Time 0. Cash flow at year 1 is $120,000. In eachsubsequent year cash flow will grow at 10 percent per year. Theintroduction of a new product at year 6 will terminate further cashflows from this project. (See financial data below). Assume adiscount rate for both products is 15% where necessary to solve thefollowing problems.
Year NP-30 NX-20
0 -$660,000 -$420,000
1 $222,000 $120,000
2 $222,000 $132,000
3 $222,000 $145,000
4 $222,000 $199,720
5 $222,000 $206,692
calculate the IRR for both projects. NP-30 is the nextgeneration of professional clubs that will take an initialinvestment of $660,000 at Time 0. The next next five years (year1-5) of sales will generate a consistent cash flow of $222,000 peryear. (see financial data in Question 4). The introduction of thenew clubs (the next, next generation) at Year 6 will terminatefurther cash flows from this project.
Based only on IRR considerations, which project should beselected? Use excel to help with your calculations. Round to thethe second decimal, e.g 24.05%, 18.29%, etc.

Answer & Explanation Solved by verified expert

4.3 Ratings (579 Votes)

IRR Where NPV of project is equal to zeroUsing trial and error approch we getIRR See Answer

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Consider two mutually exclusive new product launch projects thatNagano Golf is considering. The NX-20 project is a proposedhigh-end amateur clubs that requires an initial investment of$420,000 at Time 0. Cash flow at year 1 is $120,000. In eachsubsequent year cash flow will grow at 10 percent per year. Theintroduction of a new product at year 6 will terminate further cashflows from this project. (See financial data below). Assume adiscount rate for both products is 15% where necessary to solve thefollowing problems.YearNP-30NX-200-$660,000-$420,0001$222,000$120,0002$222,000$132,0003$222,000$145,0004$222,000$199,7205$222,000$206,692calculate the IRR for both projects. NP-30 is the nextgeneration of professional clubs that will take an initialinvestment of $660,000 at Time 0. The next next five years (year1-5) of sales will generate a consistent cash flow of $222,000 peryear. (see financial data in Question 4). The introduction of thenew clubs (the next, next generation) at Year 6 will terminatefurther cash flows from this project.Based only on IRR considerations, which project should beselected? Use excel to help with your calculations. Round to thethe second decimal, e.g 24.05%, 18.29%, etc.

Year	NP-30	NX-20
0	-$660,000	-$420,000
1	$222,000	$120,000
2	$222,000	$132,000
3	$222,000	$145,000
4	$222,000	$199,720
5	$222,000	$206,692