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Logic - Product NPV

The final question can then be asked: What is such a product worth to the company? i.e. is the project is worth doing?

The calculation of the project NPV is a good place to start.

The real skill here (as in real life) is in estimating the inflows and outflows of cash. The actual application of the technique is straightforward. The costs and revenues each year will depend on demand and production levels . These depend on the potential of the target segment including competitive activity. This is described in the marketing module.

Armed with these figures the NPV can be calculated. if the NPV is negative, the whole process may need to be repeated until a good project is found. Also if the NPV is positive, the process may be repeated to see if there is a better alternative.(If none can be found and if increased investment in current operations cannot give the required return, then maybe consider returning some money to shareholders through dividends and/or share buy back.)

See Also

Logic - Product Development

Logic - Development Cost

Logic - Target Prime Cost

Logic - Product Attribute

Logic - Perceptual Map