Payne Medical Labs is evaluating two new products to introduce into the marketpl

Question

Payne Medical Labs is evaluating two new products to introduce into the marketplace. Product 1 (a new form of plaster cast) is relatively low in risk for this business and will carry a 10 percent discount rate. Product 2 (a knee joint support brace) has a less predictable outcome and will require a higher discount rate of 15 percent. Either investment will require an initial capital outlay of $90,000. The inflows from projected business over the next five years are given below. Which product should be selected using net present value analysis? Years Product 1 Product 2 1 $ 25,000 $ 16,000 2 30,000 22,000 3 38,000 34,000 4 31,000 29,000 5 19,000 70,000

Explanation / Answer

its definitely product 1 ie Product 1 (a new form of plaster cast) is relatively low in risk for this business and will carry a 10 percent discount rate.

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