Reference no: EM133893151

Question

The valuation of a project using Net Present Value requires estimates of future (and time 0) incremental cash flows from the project. Of course this means that we first need to identify the sources of these cash flows and then try to estimate their values, or the portion of their values that is incremental. Therefore, sunk costs, by their nature are irrelevant because they do not affect the future cash flows from a project. On the other hand, things like opportunity costs, side effects, tax effects, and inflation do affect future cash flows of the firm, and therefore are relevant. Please meet or otherwise communicate with your group to answer the following:

1. Browse the Web to find news articles about a particular product (or service) that was recently launched by a company of your choice -- the less well-known the company or product/service, the better.

2. Assuming that your chosen firm initially performed an NPV-type incremental cash flow valuation of the project involving the product (or service) you mention above, please make a list of some possible opportunity costs and side-effects (i.e. synergy and erosion) that may have been identified when valuing this project, and discuss how these factors might have affected the NPV of the project.

In your discussion, please provide some specific examples (for example, for side-effects, give specific examples of other products/services whose projected cash flows would be affected by the launch of the new product or service).