Question

Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for both products is 14 percent. Project A: Nagano NP-30. Professional clubs that will take an initial investment of $580,000 at Time 0. Next five years (Years 1–5) of sales will generate a consistent cash flow of $215,000 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 $440,000 at Time 0. Cash flow at Year 1 is $130,000. In each subsequent year cash flow will grow at 10 percent per year. Introduction of new product at Year 6 will terminate further cash flows from this project. Year NP-30 NX-20 0 –$ 580,000 –$ 440,000 1 215,000 130,000 2 215,000 143,000 3 215,000 157,300 4 215,000 173,030 5 215,000 190,333

NP-30 NX-20 Payback years years IRR % % PI NPV $ $

Answer 1