MBA Golf

Consider the two mutually exclusive new product lines that MBA Golf is considering. Assume the discount rate for MBA is 9%. 

Project A

Professional clubs that will take an initial investment of $600,000.

The first 5 years of sales will generate a consistent cash flow of $160,000 per year.

Introduction of the new version of this product line at the end of year 5 will diminish the further cash flows by 10% at year 6 and continue until year 15; after which product line will be discounted resulting in termination of future cash flows from this project. 

Project B

Higher end amateur clubs that will take an initial investment of $500,000.

Cash flows 1st year of $80,000; each subsequent year (cash flow) will grow at 5.5% per year until year 10. 

Introduction of the new version of this product line at the end of year 10 will diminish further cash flows by 2% at year 11 and continue until year 15; after which this product line will be discontinued resulting in termination of future cash flows from this project. 

Explain how the Net Present Value, Internal Rate of Return, Incremental IRR and 10 year payback were used in the selection process