Question
Mallard Saws produces table saws for the do-it-yourself (DIY) market and has been very successful financially. Lew Mallard, CEO, is working with his executive team, Hew, Dew, Don, and Daisy, on new-product development decisions. The group is considering the possibility of designing and launching four new products, which have been tentatively named Bubba, Butch, Brutus, and Buddy. A team of analysts has generated the following information about each product, based on market and technical studies:
Product
Market Life Cost to Develop Net Annual Income Expected
Bubba 5 years $1,000,000 $300,000
Butch 4 years $500,000 $200,000
Brutus 10 years $2,000,000 $560,000
Buddy 3 years $400,000 $150,000
Calculate net present value (NPV) for each potential project, assuming a discount rate of 18%. Use the present value table on the Announcement page. Discuss the results and make a recommendation. What other factors should be considered in the selection decision?
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