Product A

This product will take 2 years to develop, at a cost of $100,000 in the first year (Yr 0) and $50,000 in the second. Revenue (benefits) in subsequent years is expected to be $100,000 per year.

Product B
This product will only take a year (Yr 0) to develop, at a cost of $120,000. Revenue (benefits) in subsequent years in expected to be $60,000 per year.
Assuming the company uses a 5-year planning horizon, which product should Megasoft initiate a project to develop?

Year 0 Year 1 Year 2 Year 3 Year 4 Total

Product A
Costs
Benefits
Cash Flow
Discount factor 1.00 0.83 0.69 0.58 0.48
DB - DC NPV
Product B
Costs
Benefits
Cash Flow
Discount factor 1.0 0.83 0.69 0.58 0.48
DB - DC
NPV