Cucamonga Electronics Inc. is considering two new product lines; CD players and DVRs. Both require an immediate investment of $1,000,000. Cucamonga Electronics Inc. has a required rate of return of 14%.
Annual Net Cash Inflows
Year CD Players DVRs
1 305,450 500,000
2 305,450 350,000
3 305,450 300,000
4 305,450 250,000
5 305,450 40,000
Required. Calculate the NPV, Profitability Index for these two investments. What is the payback period for each? Which project, if any, should we pursue? Why?