A Firm Is Trying to Determine Which of Two Products

question 59

Multiple Choice

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 $15,000 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.

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Definitions:

Base Pairs

Units of double-stranded DNA consisting of two nucleotides located on opposite complementary DNA or RNA strands that are connected via hydrogen bonds.

Amino Acids

Organic compounds that combine to form proteins, serving as the building blocks of life.

Chemicals

Substances with a distinct molecular composition that are used or produced in processes involving changes to molecules or atoms.

Identical Twins

Twins who originate from a single fertilized egg that splits and develops into two individuals with exactly the same genetic material.