Question

________________________________________ Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for both projects is 13 percent. Project A: Nagano NP-30. Professional clubs that will take an initial investment of $570,000 at Time 0. For the next 5 years sales will generate a consistent cash flow of $205,000 per year. Introduction of new product at Year 6 will terminate further cash flows from this project. Project B: Nagano NX-20. High-end amateur clubs that will take an initial investment of $400,000 at Time 0. Cash flow at Year 1 is $120,000. In each subsequent year, cash flow will grow at 10% per year. Introduction of new product at Year 6 will terminate further cash flows from this project. NP-30 NX-20 Year 0 –$ 570,000 –$ 400,000 1 205,000 120,000 2 205,000 132,000 3 205,000 145,000 4 205,000 159,720 5 205,000 175,692 Complete the following table: (Do not round intermediate calculations. Enter the IRR as a percent. Round your profitability index (PI) answers to 3 decimal places (e.g., 32.161) and other answers to 2 decimal places (e.g., 32.16).) NP-30 NX-20 NPV $_______ $__________ IRR __________% ____________% PI ___________ _____________ What is the incremental IRR of investing in the larger project? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places (e.g., 32.16).) Incremental IRR _________%

Answer 1

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Home ert Page Layout Formulas Data Review V Add-Ins s Cut aCopy Format Painter Σ AutoSum , Fill В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛Conditional Format. Cell. Insert Delete Format Paste Sort &Find & Formatting as Table Styles ClearFilter Select Clipboard Font Styles Cells dting Alignment FR161 FP FR FS FT FU FV FW 161 NX 20 162 YEARNP 30 570000 163 0 164 205000 120000 165 205000 132000 145200 166 205000 159720 167 4 205000 168 205000 175692 169 151032.41 170 103518.78 NPV [-NPV( 1396,FR164:FR168) +FR163] [-NPV(13%,FS164:FS168) +FS163] 172 173 22.45% 23.39% 174 -IRR(FR163:FR168)]IRR(FS163:FS168) ] 175 1 NPV/INVESTMENT 176 178 1.265 1.259 [1(151032.41/570000)] [1+ (103518.78/500000)] 179 EAAMIRR NPV IRR REPLACEMENT S HPR GMAM EAC MACRS LEASERATIOCASHBUDGET Wacc BONDSTEIN indiffEPS EBIT 4H IRRnpvbetaPVFV RATION PBP ARR 28-05-2019

File AU Home ert Page Layout Formulas Data Review V Add-Ins 522222 義Cut 012345 Σ AutoSum , General ta copy ▼ Fill В า 프. m. a-Δ. Ξミ 迣锂函Merge & Center. $, % , 弼皛 Conditional Format C Insert Delete Format Sort &Find & Format Painter Formatting as Table Styles ClearFilter Select Clipboard Font Cells dting Alignment FT194 FP FR FS FU FW 181 182 INCREMENTAL CFAT NP 30-NX 20 183 NP 30 NX 20 184 570000 170000 185 205000 120000 85000 186 205000 132000 73000 59800 187 205000 145200 188 205000 159720 45280 29308 189 205000 175692 190 191 INCREMENTAL IRR 26.18% [-IRR(FT184:FT189)] 192 193 194 195 196 197 198 199 EAAMIRR NPV IRR REPLACEMENT S HPR GMAM EAC MACRS LEASERATIOCASHBUDGET Wacc BONDSTEIN indiffEPS EBIT 4H IRRnpvbetaPVFV RATION PBP ARR 28-05-2019