CellTech is proposing the launch of its new Cphone 5. The Cphone 5 will cost $8 million to develop and produce cash flows of $3.5 million for three years. The release of the Cphone 5 is also expected to cannibalize sales of the Cphone 4 and reduce the cash flows from Cphone 4 by $1 million for the next two years. If CellTechs cost of capital is 12.7%, should it go ahead with the Cphone 5?

Answer: No, the Cphone 5 has an NPV of $-1,368,319.23

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