A manager of a mattress manufacturing company with a cost of capital of 8% believes that...

A manager of a mattress manufacturing company with a cost of capital of 8% believes that the market is oversaturated with diamond dust mattresses. In order to get ahead of competitors, one must come up with marketing innovation. Using palladium or platinum dust may consist such an innovation. The cash flows associated with palladium- and platinum-dust mattress manufacturing are given below:

year	Palladium	Platinum
0	-$170,000	-$120,000
1	$15,000	$50,000
2	$40,000	$70,000
3	$50,000	$40,000
4	$70,000	$30,000
5	$60,000	$15,000
6	$50,000	$10,000

a) What is the NPV of each project?

b) Based on the above calculations please decide which project is better?

Solutions

Expert Solution

Calculate the NPV of the project as follows:

Formulas:

jeff jeffy answered 1 year ago

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