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Cranfield Inc Essay

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Introduction:
Cranfield Inc. is a leading producer of juices for range of cranberry cocktails. After a market research experiment Cranfield Inc. has many different business decisions to make. One to introduce a new line called lite cocktail which requires space and machinery and will eat into sales of currently offered products. Or not to introduce the new product and lease out it’s space, or do nothing to save the space until it’s needed for its current product line.
1) Incremental cash flows are the cash flows that should be used in calculating the NPV of a project. The cash flows are changes in cash flows that occur as a direct consequence of accepting a project, not the cash flows that the company is already receiving.
No we do …show more content…

5) Yes cannibalization effect should be taken into consideration. If Cranfield does introduce lite cocktail than this might have an effect on the sales of regular cranapple, thus it should be taken into consideration in the project.
If management believed if they didn’t introduce the lite product than someone else would, then yes sales of regular cranapple would be adversely affected if they introduced the lite product or not.
6) Year 0 net investment outlay 400,000+20,000+40,000+15,000=475,000$
See Table 1: Expected non-operating cash flow when the project is terminated at year 4 = 165,880$
7) See Table 1 NPV=42,318.71 IRR = 14% MIRR = 12% Payback period= 2.93 years. Yes the project should be undertaken.
8) A) The problems with the discount rate being a nominal rate and the cash flows a real rate is the fact that the discount rate is inflation adjusted and the cash flows are not. Therefore the discount rate should subtract inflation due to the fisher effect, nominal = real plus inflation to have the same “rate” as the cash flows or the cash flows should take into account inflation. If not the cash flows are understated or the discount rate is too high.
B) Inflation can have a significant effect on the cash flows. An

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