You are the New Product Manager for a medical device company. Your new product i

Question

You are the New Product Manager for a medical device company. Your new product is in the middle of testing and development and the product is expected to be launched in January 2019. If it is launched in January 2019, your finance expert recently told you that the “NPV of the project is greater than $0” and that the product will be “profitable to the firm over the 10 year life cycle of the product”.   Today, you found out that your product needs to go through even more testing and development due to increased government regulation and that your product may not launch until January 2020. Without consulting your finance expert, how do you think this affects the assessment of going ahead and funding the development of the product. Explain.

Explanation / Answer

The product is expected to be launched in January 2019. If it is launched in January 2019, finance expert assessed that the NPV of the project is greater than $0” and that the product will be profitable to the firm over the 10 year life cycle of the product.

While considering the NPV of any proect, that too for a time period of 10 years, the following parameters are taken into consideration:

Now, it is expected to get delayed by one year resulting in a negative NPV due to loss of cash flow for one year. Still the product can be launched and the assessed NPV can be converted to positive as under:

Considering all these available possibilities and better strategy to implement the available options, it can still be decided to launch the product.

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