You are a manager considering a positive-NPV project. Which of the following announcements indicate that you may have underestimated its NPV?
A)Two critical industry suppliers announce that they will merge their firms.
B)A key competitor releases earnings results, and its stock price drops by 25 percent in response.
C)You just found out that the project's chief engineer has recently received multiple job offers from competing firms.
D)Your marketing staff alerts you that the new project may "cannibalize" sales (i.e., reduce sales)of existing product to a greater extent.

Question

Quizplus · Accepted Answer

A competitor's stock price dropping significantly may indicate that the market sees less value in their projects or operations, potentially increasing the relative value of your project and suggesting that its NPV might have been underestimated.

You Are a Manager Considering a Positive-NPV Project