You are the CFO of Motor City Spirits Co. in Detroit. The owner is considering two...

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You are the CFO of Motor City Spirits Co. in Detroit. The owner is considering two new products, a Rye or a Bourbon, but can only support one. Both products require some upfront costs and have projected cash flows for 3 years. Annual cash flows: Rye Year 0 $ (906,250) Year 1 Year 2 Year 3 Bourbon $ 337,500 $525,000 $475,000 $ (1,812,500) $ 1,025,00 $ 812,500 $675,000 Discount rate 14% a. Given that you typically use IRR as your decision criteria, which spirit should you produce? b. Lastly, you recall your Finance professor really liked using NPV, so you consider NPV for both projects? c. What is the payback period for these projects. You are the CFO of Motor City Spirits Co. in Detroit. The owner is considering two new products, a Rye or a Bourbon, but can only support one. Both products require some upfront costs and have projected cash flows for 3 years. Annual cash flows: Rye Year 0 $ (906,250) Year 1 Year 2 Year 3 Bourbon $ 337,500 $525,000 $475,000 $ (1,812,500) $ 1,025,00 $ 812,500 $675,000 Discount rate 14% a. Given that you typically use IRR as your decision criteria, which spirit should you produce? b. Lastly, you recall your Finance professor really liked using NPV, so you consider NPV for both projects? c. What is the payback period for these projects.

Answer rating: 100% (QA)

a To determine which spirit to produce using the Internal Rate of Return IRR as the decision criteri... View the full answer