A Firm Is Trying to Determine Which of Two Products

question 99

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 $15,500 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.

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Definitions:

Office Supplies

Items used in offices on a regular basis for the purpose of functionality and efficiency, such as pens, paper, and staplers.

Advertising

The action of calling public attention to products, services, or events, typically through paid announcements.

Bank Reconciliation

The process of comparing a company’s financial records and balance with its bank statement to ensure consistency and accuracy in the recorded transactions.

Journal Entry

A record in the accounting journal that represents a single business transaction through the debit and credit of financial accounts.