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29 April, 2015 - 15:03

When valuing a project, it is necessary to take into consideration how it will affect other parts of your business. For example, say you are the CFO of a computer store that sells X1000 high end computers, and X500 budget computers. If you are considering introducing a new line of X750 mid-range computers, you must consider that this may cannibalize some business from the high end line. That is, some customers who might have otherwise purchased a more expensive X1000 may now settle for the X750.

On the other hand, some new projects may create synergies, or benefits, to other product lines. For example, if you are in the oil refining business, and you are considering opening up you own oil well, this may reduce the costs for your refinery. So this too, must be added in as an additional benefit in your NPV calculation.