You are considering the introduction of a new product that will require an investment in new machinery.Which one of these will lower the net present value of that project?
A) A reduction in the firm's total variable costs due to the purchase of the new machine
B) A loss of sales of existing products due to the introduction of the new product
C) The increase in annual depreciation resulting from the asset purchase
D) The sale of the machine after it is fully depreciated

Question

Quizplus · Accepted Answer

The loss of sales of existing products due to the introduction of the new product will lower the net present value of the project because it will decrease the overall revenue of the firm. The other options will either reduce costs (A) or have no effect on the net present value (C, D).

You Are Considering the Introduction of a New Product That