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