MT12 Consider two mutually exclusive new product launch projects that Nagano Gol

Question

MT12

Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for Nagano Golf is 14 percent. (Do not round intermediate calculations. Round your "PI" answers to 3 decimal places (e.g., 32.161) and other answers to 2 decimal places, (e.g., 32.16)) Project A: Nagano NP-30. Professional clubs that will take an initial investment of $720,000 at time 0. Next five years (Years 1-5) of sales will generate a consistent cash flow of $320,000 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 $910,000 at Time 0. Cash flow at Year 1 is $270,000. 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. Complete the following table:

Explanation / Answer

Payback period: Initial investment / Annual investment

NX-30: 720,000 / 320,000 = 2.25 years

NX-20: Cumulative cash flows upto the 3rd year = 270,000 + 297,000 + 326,700 = 893,700

Payback period = 3 + 910,000 - 893,700 / 359,370 = 3.05 years

NPV:

NX-30 :

Present value of cash inflows at 14% discount rate = 320,000 x 3.4331 = $ 1,098,592

NPV = $ 1,098,592 - $ 720,000 = $ 378,592

NX-20

Present value of cash inflows = 270,000 x 0.8772 + 297,000 x 0.7695 + 326,700 x 0.6750 + 359,370 x 0.5921+ 395,307 x 0.5194 = $ ( 236,844 + 228,541.5 + 220,522.5 + 212,782.98 + 205,322.46) = $ 1,104,013.44

NPV = $ 194,013

NX-30 NX-20 Payback 2.25 years 3.05 years IRR 34% 20% PI 1.53 1.21 NPV $ 378,592 $ 194,013

Related Questions

Navigate

• Browse (All)
• Browse M
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.