Which of the following statements is correct?
A) If a project can create employment in a slump area, firm should include such an externality in the NPV calculations.
B) If cannibalization exists, then the cash flows associated with the project must be increased to offset these effects. Otherwise, the calculated NPV will be biased downward.
C) If cannibalization is determined to exist, then this means that the calculated NPV considering cannibalization will be higher than the NPV that does not recognize these effects.
D) Cannibalization is a type of externality that is not against the law, and any harm it causes is done to the firm itself.

Question

Quizplus · Accepted Answer

Cannibalization refers to a situation where a new project or product eats into the sales of the firm's existing products. It is an internal issue and not illegal, as it affects the firm's own products.

Which of the Following Statements Is Correct