Question

A company is thinking in investing in one of two potential new products for sales. The projections are as follows:

year     revenues A      revenue B
0           (450,000) outlay         (450,000) outlay
1             72,000                            36,000
2             72,000                            76,000
3            132,000                          156,000
4            252,000                          190,000

a) calculate the payback period for both    products

b) Calculate NPV of products assuming a discount rate of 5%

c) which product should be chosen and why?

d) Calculate the IRR for product A only using 4% and 18%

e )outline the advantages and disadvantages of the NPV and payback.

       

Answer 1

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