Corporate Finance Q39

39A company that sells energy drinks is evaluating an expansion of its production facilities to also produce soda drinks. The company’s marketing department recommended producing soda drinks as it would increase the company’s energy drinks sales because of an increase in brand awareness. What impact will the cash flows from the expected increase in energy drinks sales most likely have on the NPV of the soda drinks project?

Option : B
Explanation : The increase in energy drinks sales represents a positive externality that will increase the NPV of the project and should be included in the NPV analysis.

Forgot your password?

I agree with the Terms.