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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
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?
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