Reference no: EM132468090

The management at Luke Products Inc. is looking at the financials for an innovative new diaper-changing station. The expected life cycle forthe product is four years. The initial projected product design costs are $500,000. Management typically uses a discount rate of 10% for all new product financials.

Question 1. Calculate IRR using information in table below and initial investment of $500,000.

Year         Projected Cash In-Flows ($)

1                     130,000

2                     250,000

3                      300,000

4                       100,000

Question 2. The product design costs are $250,000. Use a discount rate of 9% for the projected cash in-flows. Assume a five-year lifespan. Calculate the projected NPV, the payback time, and the IRR.

Year         Projected Cash In-Flows ($)

1                120,000

2                90,000

3                75,000

4               50,000

5               20,000

3. For the two projects here and using a discount rate of 12%, decide which one should receive the investment funds.

Year              Projected Cash Flows1 ($)           Projected Cash Flows2 ($)

Cost -                $325,000 -                             $285,000

1                         138,000                                 112,000

2                          225,000                                 188,000

3                          240,000                                  154,000

4                           55,000                                      86,000