Comparing Investment Criteria Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for Nagano Golf is 15 percent.
Project A: | Nagano NP-30. | |
Professional clubs that will take an initial investment of $550,000 at time 0. | ||
Next five years (Years 1–5) of sales will generate a consistent cash flow of $185,000 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 $350,000 at Time 0. | ||
Cash flow at Year 1 is $100,000. In each subsequent year cash flow will grow at 10 percent per year. | ||
Introduction of new product at Year 6 will terminate further cash flows from this project. |
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