A company is thinking of investing in one of two potential new products for sale. The...
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A company is thinking of investing in one of two potential new products for sale. The projections are as follows: Year Revenue/cost £ (Product R) Revenue/cost £ (Product S) 0 1 (450,000) outlay 72,000 72,000 132,000 252,000 (450,000) outlay 36,000 76,000 156,000 190,000 a) Calculate the payback period for both products to nearest half month (2 marks) b) Calculate NPV of both products assuming a discount rate of 5% (6 marks) c) Which product should be chosen and why? (2 marks) d) Calculate the IRR for Product R only using 4% and 18% (4 marks) e) Outline the advantages and disadvantages of the IRR and payback (6 marks) 22 A company is thinking of investing in one of two potential new products for sale. The projections are as follows: Year Revenue/cost £ (Product R) Revenue/cost £ (Product S) 0 1 (450,000) outlay 72,000 72,000 132,000 252,000 (450,000) outlay 36,000 76,000 156,000 190,000 a) Calculate the payback period for both products to nearest half month (2 marks) b) Calculate NPV of both products assuming a discount rate of 5% (6 marks) c) Which product should be chosen and why? (2 marks) d) Calculate the IRR for Product R only using 4% and 18% (4 marks) e) Outline the advantages and disadvantages of the IRR and payback (6 marks) 22
Expert Answer:
Answer rating: 100% (QA)
a To calculate the payback period for both products we need to determine the time it takes for the cumulative cash flows to equal or exceed the initial investment For Product R Year 0 Outlay of 450000 ... View the full answer
Related Book For
Business Statistics
ISBN: 9780321925831
3rd Edition
Authors: Norean Sharpe, Richard Veaux, Paul Velleman
Posted Date:
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