A Firm Is Trying to Determine If It Should Launch

question 105

Multiple Choice

A firm is trying to determine if it should launch a product. The product has an expected life of five years. It will bring in cash flows of $10,000 in each of the first three years and then $5,000 in the last two years. The company estimates that it will invest $35,000 in product research and development costs. Assume a discount rate of 8%. Based on NPV, what should the firm do?

• A) Launch the product because NPV is greater than the amount to be invested
• B) Not launch the product because NPV is greater than the amount to be invested
• C) Launch the product because the amount to be invested is greater than NPV
• D) Not launch the product because the amount to be invested is greater than NPV

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