A company is thinking of investing in one of two potential new products for sale. The projections are as follows: Year   Revenue/cost £ (Product A)     Revenue/cost £ (Product B) 0       (150,000) outlay                        (150,000) outlay  1       24,000                                       12,000 2       24,000                                       25,333 3       44,000                                       52,000 4       84,000                                       63,333 Calculate NPV of both products (to 1 d.p.) assuming a discount rate of 7%. Which product should be chosen and why?

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
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A company is thinking of investing in one of two potential new products for sale. The projections are as follows:

Year   Revenue/cost £ (Product A)     Revenue/cost £ (Product B)
0       (150,000) outlay                        (150,000) outlay 
1       24,000                                       12,000
2       24,000                                       25,333
3       44,000                                       52,000
4       84,000                                       63,333

  1. Calculate NPV of both products (to 1 d.p.) assuming a discount rate of 7%.

  2. Which product should be chosen and why?

 

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