Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for both products is 15 percent.
Project A: Nagano NP-30.
Professional clubs that will take an initial investment of $660,000 at Year 0.
For each of the next 5 years, (Years 1-5), sales will generate a consistent cash flow of $295,000 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 $710,000 at Year 0.
Cash flow at Year 1 is $210,000. In each subsequent year, cash flow will grow at 10 percent per year.
Introduction of new product at Year 6 will terminate further cash flows from this project.
Year NP-30 NX-20
0 −$ 660,000 −$ 710,000
1 295,000 210,000
2 295,000 231,000
3 295,000 254,100
4 295,000 279,510
5 295,000 307,461
Complete the following table:
