Gone Mad Company Limited is considering two mutually exclusive projects to expand its operations: (1) A new product line to enhance sales (2) Investment in Research and Development (R&D) which is also expected to boost sales. (3) Each project has an initial investment of $325,000. The company’s board of directors has set up a minimum 3-year payback period requirement and has set its cost of capital at 9%. The incremental cash inflows associated with the two projects are as follows: Year incremental Cash Inflows (CFt) New Line R&D 1 $120,000 $100,000 2 120,000 115,000 3 120,000 125,000 4 120,000 140,000 1) Calculate the NPV of each project at discount rate of 9%, as well as the Internal Rate of Return of both projects and discuss the findings–
Gone Mad Company Limited is considering two mutually exclusive projects to expand its operations:
(1) A new product line to enhance sales
(2) Investment in Research and Development (R&D) which is also expected to boost sales.
(3) Each project has an initial investment of $325,000.
The company’s board of directors has set up a minimum 3-year payback period
requirement and has set its cost of capital at 9%. The incremental
with the two projects are as follows:
Year incremental Cash Inflows (CFt)
New Line R&D
1 $120,000 $100,000
2 120,000 115,000
3 120,000 125,000
4 120,000 140,000
1) Calculate the NPV of each project at discount rate of 9%, as well as the
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