Winnebago Industries, Inc. is considering two alternativecapital investment

projects for future expansion: (1) expand production of itsmotor homes, which

currently sell for $48,000 per unit, or (2) expand production ofits luxury motor

coaches, which currently sell for $85,000 per unit. If itinvests to expand

production of its motor homes, it expects to increase motorhomes annual sales

by 15,000 units at $48,000 each and reduce annual sales ofluxury motor

coaches by 550 units, over the next 5 years. If it invests toexpand production of

its luxury motor coaches, it expects to increase luxury motorcoaches annual

sales by 6,500 units at $85,000 each and reduce annual sales ofmotor homes by

1,200 units, over the next 5 years. Cost of goods sold andselling, general &

administrative expenses combine for a total of 55% of sales.

Winnebago expects that it would need capital investments infixed assets of

$800,000,000 for the motor home expansion project, and$600,000,000 for the

luxury motor coach expansion project. Both assets are expectedto be

depreciated straight line to zero over the 5 years. Both assetsare expected to

have a salvage value of 20,000,000 after 5 years. Both projectsrequire additional

investment in inventory of $14,000,000 and additional accountspayable of

$8,000,000. Winnebago’s corporate tax rate is 34%. Winnebago’sinvestment

banker estimates its weighted average cost of capital (WACC) at15%.

Evaluate the two capital investment project alternatives andmake your

recommendation using:

a. Net Present Value (NPV)

b. Internal Rate of Return (IRR)

c. Modified Internal Rate of Return (MIRR)