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

There will be more cost due to more testing and development which is caused by increased government regulation. Not only that consulting company will generate the revenue from Jan 2020 which cause 1 year delay in revenue recognition.

Both of these factors will affect the NPV of the project additional cost and delay reveunue generation will decrease the NPV, thus if NPV value is very small then there might be the possibilty that project will not able to generate positive NPV in new conditions. If the NPV is very large and cost is also very large and more than NPV then again it will be generate negative NPV and he should not able to launch the project. But NPV is very large amount and cost is verly less then one can say that this project will still earn positive NPV and one should go ahead with the project.

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