Calculate payback-discounted payback-net present value

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Reference no: EM13927552

A consumer product firm finds that its brand of laundry detergent is losing market share, so it decides it needs to “freshen” the product. One strategy is to maintain the current detergent formula but to repackage the product. The other strategy involves a complete transformation of the product in a way that will appeal to environmentally conscious consumers. The firm will pursue one strategy or the other but not both. Cash flows from each proposal appear below, and the firm discounts cash flows at 13%.

Year - Repackage - Reformulate

0 -$3,000,000 -$25,000,000

1 2,000,000 10,000,000

2 1,250,000 9,000,000

3 500,000 7,000,000

4 250,000 4,000,000

5 250,000 3,500,000

Calculate the payback, discounted payback, net present value, internal rate of return and modified internal rate of return for each project. Which of the two projects should the firm choose? Why?

Reference no: EM13927552

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