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Category > Accounting Posted 12 Oct 2017 My Price 5.00

The Fast Food chain is trying to introduce its new Hot and Spicy line of hamburgers

The Fast Food chain is trying to introduce its new Hot and Spicy line of hamburgers. One plan (S) will include a big media campaign but less in-house production capability. The other plan (L) will concentrate on a more gradual roll-out of the project but will involve more investment in personnel training and so forth. The cost of capital is 15 percent. The cash flows ($000) are listed below. The initial investment for each is $400,000.

 

 

Plan

  

Year 1

  

2

  

3

  

4

  

5

S

L

  

$250

100

  

$250

125

  

$150

200

  

$100

250

  

$ 50

125

 

 

a. Construct the NPV profiles for plans S and L. Which has the higher IRR?

 

 

b. Which plan should Fast Food choose using the NPV method?

 

 

c. Which plan (S or L) should Fast Food choose? Why?

 

d. At what cost of capital will the NPV and the IRR rankings conflict?

Answers

SmartExpert
(118)
Status NEW Posted 12 Oct 2017 01:10 AM My Price 5.00

Ans-----------wer-----------: -----------Ans-----------wer-----------: P-----------lan----------- S -----------has----------- NP-----------V(0-----------00â-----------€™s-----------) =----------- $1-----------87.-----------09 -----------and----------- IR-----------R =----------- 39-----------.28-----------%, -----------Pla-----------n L----------- ha-----------s N-----------PV(-----------000-----------’-----------s) -----------= $-----------118-----------.06----------- an-----------d I-----------RR -----------= 2-----------5.6-----------3%.----------- Pl-----------an -----------S h-----------as -----------the----------- hi-----------ghe-----------r I-----------RR.----------- Â----------- 

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