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 $450,000 at time 0.
Next five years (years 1-5) of sales will generate a consistent cash flow of $160,000 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 $200,000 at time 0.
Cash flow at year 1 is $80,000. In each subsequent year cash flow will
grow at 15 percent per year. Introduction of new product at year 6 will terminate further cash flows from this project.
Year | NP-30 | NX-20 |
0 | ‒$450,000 | ‒ $200,000 |
1 | 160,000 | 80,000 |
2 | 160,000 | 92,000 |
3 | 160,000 | 105,800 |
4 | 160,000 | 121,670 |
5 | 160,000 | 139,921 |
Please fill in the following table:
| NP-30 | NX-20 | Implications |
NPV | |||
IRR | |||
Incremental IRR | |||
PI | |||
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