Question

Please show how you got all calculations

McCormick & Company is also considering introducing two new product lines to be made at the new factory (if it is purchased). As a new member of MCS's finance team, you are asked to determine whether McCormick & Company should invest in the two product line expansions. Project A has lower future cash flows than Project B, but because Project A is more closely related to McCormick's existing product line, the company feels it is less risky than Project B. You’ve done some more analysis and have formulated the following future profits for each project (with the first cash flow occurring one year from now). Each project is expected to have a life of 5 years. Year 1 Year 2 Year 3 Year 4 Year 5 Project A $5M $10M $10M $15M $15M Project B $5M $10M $15M $20M $20M You also believe that each project will require about $40 million in upfront investment. Finally, based on the different risk assumptions, you believe that Project A should use a discount rate of 7 percent, while Project B will have a discount rate of 20 percent. Which project or projects should the company undertake?

Answer #1

McCormick and company is also considering introducing two new
product lines to be made at the new factory (if it is purchased).
as a new member of MCS's finance team, you are asked to determine
whether McCormick and Company should invest in the two product line
expansions. Project A has lower future cash flows than project B,
but Project A is more closely related to McCormick's existing
product line, the company feels that it is less risky than project
B....

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