Based Upon the Following Cash Flows, Should Ooey Gooey Candy

question 2

Multiple Choice

Based upon the following cash flows, should Ooey Gooey Candy Makers introduce a new product, Skinny Minnie Diet Cuisine? The initial investment is $780,000, and the cost of capital is 12.2%. ? $$\begin{array} { | l | l | } \hline \text { Years } & \text { Cash Flows } \\\hline 1 & \$ 90,000 \\\hline 2 & \$ 105,000 \\\hline 3 & \$ 105,000 \\\hline 4 & \$ 195,000 \\\hline 5 & \$ 195,000 \\\hline 6 & \$ 195,000 \\\hline\end{array}$$

• A) Yes, the NPV is $288,410.60 and the IRR is 38.2%.
• B) Yes, the NPV is $175,478.98 and the IRR is 20.42%.
• C) No, the NPV is -$211,589.40 and the IRR is 3.24%.
• D) No, the NPV is -$75,375.18 and the IRR is 11.75%.

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Definitions:

Effective-Interest Method

The effective-interest method is a financial accounting technique used to allocate loan or investment interest payments and premium/discount adjustments over the relevant period, providing a more accurate representation of financial performance.

IFRS

International Financial Reporting Standards, a set of accounting standards developed by the International Accounting Standards Board (IASB) that is used globally to ensure consistency and transparency in financial reporting.

ASPE

Accounting Standards for Private Enterprises; a set of accounting principles tailored for private companies in Canada.

Bank Loan Payable

A liability representing the amount of borrowed funds from a bank that the borrower is legally required to repay in the future.