Delta Ltd., is considering a new project that develops a new laundry detergent, WOW.
January 4th, 2018
Delta Ltd., is considering a new project that develops a new laundry detergent, WOW. The company has estimated that the project’s NPV is $3 million, but this does not consider that the new laundry detergent will reduce the revenues received on its existing laundry detergent products. Specifically, the company estimates that if it develops WOW the company will lose $500,000 in after-tax cash flows during each of the next 10 years because of the cannibalization of its existing products. Delta’s cost of capital is 10 percent. What is the net present value (NPV) of undertaking WOW after considering externalities?