1. A consumer product firm finds that its brand of laundry detergent is losing m
ID: 2752057 • Letter: 1
Question
1.A consumer product firm finds that its brand of laundry detergent is losing market share, so it decides that it needs to “freshen” the product. One strategy is to maintain the current detergent formula, but to repackage the product. The other strategy involves a complete reformulation of the product in a way that will appeal to environmentally conscious consumers. The firm will pursue one strategy or the other, but not both. Cash flows from each proposal appear below, and the firm discounts cash flows at 13 percent.
Year
Repackage
Reformulate
0
-$3,000,000
-$25,000,000
1
2,000,000
10,000,000
2
1,250,000
9,000,000
3
500,000
7,000,000
4
250,000
4,000,000
5
250,000
3,500,000
a. Rank these investments based on their NPVs. Show you calculations!
b. Rank these investments based on their IRRs.
c. Rank these investments based on their PIs.
Year
Repackage
Reformulate
0
-$3,000,000
-$25,000,000
1
2,000,000
10,000,000
2
1,250,000
9,000,000
3
500,000
7,000,000
4
250,000
4,000,000
5
250,000
3,500,000
Explanation / Answer
1. A consumer product firm finds that its brand of laundry detergent is losing m
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