Company proceed with the development of the product

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Reference no: EM131864981

A sports nutrition company is examining whether a new high-performance protein bar should be added to its product ine. A preliminary feasibility analysis indicated that the company would need to invest $18.5 million in a new manufacturing facility to product and package the product. A financial analysis using sales and cost data supplied by marketing and production personnel indicated that the net cash flow (cash inflows minus cash outflows) would be $7.2 million in the first year of commercialization, $9.3 million in year 2, $8.0 million in year 3, and $4.2 million in year 4.

Senior executives were undecided whether to move forward with the development of the new product. They requested that a discounted cash flow analysis be performed using two different discount rates: 20% and 25%.

A. Should the company proceed with the development of the product if the discount rate is 20? Why or why not?

B. Should the company proceed with the development of the product if the discount rate is 25%? Why or why not?

Reference no: EM131864981

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