A firm is trying to determine which of two products it should launch. Product A has an expected life of three years. It will bring in cash flows of $11,000 in each of the three years. Product B has an expected life of two years. It will bring in cash flows of $15,500 in each of the two years. Assume a discount rate of 8%. Which product should the firm, based on NPV alone, select?
A) Product A
B) Product B
C) Product A and B are equivalent
D) NPV for the products cannot be calculated with the information given.

Question

Quizplus · Accepted Answer

The NPV for Product A is higher than for Product B when calculated using the given cash flows and discount rate of 8%.

A Firm Is Trying to Determine Which of Two Products