Consider two mutually exclusive new product launch projects that Nagano Golf is considering. Assume the discount rate for both projects is 13 percent.
Project A: Nagano NP30. Professional clubs that will take an initial investment of $1,000,000 at Time 0. Introduction of new product at Year 6 will terminate further cash flows from this project.
Project B: Nagano NX20. Highend amateur clubs that will take an initial investment of $736,000 at Time 0. Introduction of new product at Year 6 will terminate further cash flows from this project.
Year NP30 NX20
0 –$ 1,000,000 –$736,000
1 355,000 271,000
2 345,000 284,000
3 320,000 269,000
4 320,000 255,000
5 230,000 196,000
Complete the following table:
NP30 
NX20 

NPV 
$ 
$ 
IRR 
% 
% 
PI 
What is the incremental IRR of investing in the larger project
What is the required return?
Year  NP30  NX20  Rate 
0  1000000  736000  0.13 
1  355000  271000  
2  345000  284000  
3  320000  269000  
4  320000  255000  
5  230000  196000  
NPV  $127,217.73  $175,444.38  
=NPV(0.13,Cash Flows from Year 15)1000000  =NPV(0.13,Cash Flows from Year 15)736000  
IRR  18.42%  22.84%  
=IRR(Cash Flows from Year 05)  =IRR(Cash Flows from Year 05)  
PI  1.127  1.238  
=1+127217.73/1000000  =1+175444.38/736000 
Year  NP30  NX20  (NP30)(NX20) 
0  1000000  736000  264000 
1  355000  271000  84000 
2  345000  284000  61000 
3  320000  269000  51000 
4  320000  255000  65000 
5  230000  196000  34000 
Incremental IRR  4.30%  
=IRR(Cash Flows from Year 05) 
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