Question

(Please show calculations and formulas that are used so I can better understand and work along. Thanks!)

GHI is considering two investment proposals. Estimated cash flows are below. Each will require an initial cash outlay, followed by several years of positive cash flows. Each project will terminate and all assets will be liquidated in year 6. GHI’s WACC is 9%.

Year |
Project 1 |
Project 2 |

Initial outlay |
$1,000,000 |
$500,000 |

1 |
$160,000 |
$120,000 |

2 |
$200,000 |
$120,000 |

3 |
$300,000 |
$120,000 |

4 |
$400,000 |
$120,000 |

5 |
$350,000 |
$120,000 |

6 included salvage |
$300,000 |
$150,000 |

- Calculate NPV, IRR, MIRR, PI, and payback period for each project.
- These projects are substitutes, so GHI will choose at most one of them. What is your recommendation? Should they go with Project 1, Project 2, or neither? Explain your reasoning.

Answer #1

Consider two mutually exclusive new product launch projects that
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Project A:
Nagano
NP-30.
Professional
clubs that will take an initial investment of $750,000 at Time
0.
Next five years
(Years 1–5) of sales will generate a consistent cash flow of
$350,000 per year.
Introduction of
new product at Year 6 will terminate further cash flows from this
project.
Project B:
Nagano...

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Please show work, or steps so i can see how to do the remaining
questions for the other years! Thanks
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