You are evaluating a new project that will introduce a revolutionary new product that will be produced by a new, highly efficient machine. 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 current sales 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

A loss of current sales due to the introduction of the new product will lower the revenue generated by the project, hence lowering its net present value. The other options, such as a reduction in total variable costs, increase in annual depreciation, and the sale of the machine after it is fully depreciated, may affect the project's cash flows but will not necessarily lower its net present value.

You Are Evaluating a New Project That Will Introduce a Revolutionary