Consider two mutually exclusive new product launch projects that Nagano Golf, a golf club and manufacturer located in Leamington Spa is considering. Assume the 5-year opportunity cost of capital for both products is 101.14%+0.0x%, where x is the last digit of your student ID. For example, if your student ID ends with 2, the 5-year opportunity cost of capital is 101.16% (i.e. 101.14%+0.02%=101.16%).

Consider two mutually exclusive new product launch projects that Nagano Golf, a golf club and manufacturer located in Leamington Spa is considering. Assume the 5-year opportunity cost of capital for both products is 101.14% +0.0x%, where x is the last digit of your student ID. For example, if your student ID ends with 2, the 5-year opportunity cost of capital is 101.16% (i.e. 101.14%+0.02% -101.16%). Project A: Nagano NP-30. Professional clubs that will take an initial investment of 535m at Year 0. For each of the next 5 years (Years 1-5), sales will generate a consistent cash flow of 239m per year. No further cash flows from this project are expected from Year 6 onwards. Project B: Nagano NX-20. High-end amateur clubs that will take an initial investment of 400m at Year 0. For each of the next 5 years (Years 1-5), sales will generate a consistent cash flow of 130m per year. No further cash flows from this project are expected from Year 6 onwards. (i) Make a suggestion on which project Nagano Golf should choose based on the payback time capital budgeting technique. What are the limitations of this capital budgeting rule? (15%) (ii) Compute the NPV for both projects. Which project(s) should Nagano Golf accept based on the NPV rule? Explain why. (20%) (iii) The Bank of England has just announced it will increase the annual risk-free rate by 0.5 percentage points. Explain in no more than 5 lines what the implications for Nagano Golf's investment behaviour will be. Will the company accept more or fewer projects using the NPV rule? Why? (20%) (iv) Suppose that Nagano Golf wants to host a major PGA (Professional Golf Association event). Organizing this event will cost 150m for a one-time redecoration, but it is supposed to increase Nagano Golf's club subscribers and thus generate income for the next 7 years. Suppose the discount rate is 10%+x%, where x is the last digit of your student ID (for example, if your student ID ends with 2, the discount rate is 12%) how much income should this event bring each year to at least break even? (25%) (v) Nagano Golf is considering issuing a zero-coupon bond to fund the PGA event and other minor investments in point (iv). This is a zero-coupon bond with maturity 8+x years (with x being the last digit of your student ID - if your student ID ends with 2, the maturity is 10 years) that costs 200,000 today and will repay 320,000. What is the yield to maturity of this bond? (20%) Consider two mutually exclusive new product launch projects that Nagano Golf, a golf club and manufacturer located in Leamington Spa is considering. Assume the 5-year opportunity cost of capital for both products is 101.14% +0.0x%, where x is the last digit of your student ID. For example, if your student ID ends with 2, the 5-year opportunity cost of capital is 101.16% (i.e. 101.14%+0.02% -101.16%). Project A: Nagano NP-30. Professional clubs that will take an initial investment of 535m at Year 0. For each of the next 5 years (Years 1-5), sales will generate a consistent cash flow of 239m per year. No further cash flows from this project are expected from Year 6 onwards. Project B: Nagano NX-20. High-end amateur clubs that will take an initial investment of 400m at Year 0. For each of the next 5 years (Years 1-5), sales will generate a consistent cash flow of 130m per year. No further cash flows from this project are expected from Year 6 onwards. (i) Make a suggestion on which project Nagano Golf should choose based on the payback time capital budgeting technique. What are the limitations of this capital budgeting rule? (15%) (ii) Compute the NPV for both projects. Which project(s) should Nagano Golf accept based on the NPV rule? Explain why. (20%) (iii) The Bank of England has just announced it will increase the annual risk-free rate by 0.5 percentage points. Explain in no more than 5 lines what the implications for Nagano Golf's investment behaviour will be. Will the company accept more or fewer projects using the NPV rule? Why? (20%) (iv) Suppose that Nagano Golf wants to host a major PGA (Professional Golf Association event). Organizing this event will cost 150m for a one-time redecoration, but it is supposed to increase Nagano Golf's club subscribers and thus generate income for the next 7 years. Suppose the discount rate is 10%+x%, where x is the last digit of your student ID (for example, if your student ID ends with 2, the discount rate is 12%) how much income should this event bring each year to at least break even? (25%) (v) Nagano Golf is considering issuing a zero-coupon bond to fund the PGA event and other minor investments in point (iv). This is a zero-coupon bond with maturity 8+x years (with x being the last digit of your student ID - if your student ID ends with 2, the maturity is 10 years) that costs 200,000 today and will repay 320,000. What is the yield to maturity of this bond? (20%)