Assignment
The board members of Felicia & Fred are strategically evaluating the prospects of fulfilling increasing demand for its products and reaching new consumers. You have recently evaluated the expansion of manufacturing facilities for Felicia & Fred, entailing two alternative projects: customizing and refurbishing a large former mill building; versus building a new facility after razing the old structure, which currently exists on the proposed site.
Below is a table summarizing your findings:
|
Project Strategy
|
NPV
|
IRR
|
|
Refurbish
|
$450,000
|
14%
|
|
Build New
|
$350,000
|
16%
|
The company's WACC is currently 10%.
Which of the project alternatives should be chosen by the company? Which decision rule should be the basis of decision making when the outcomes conflict?