Question
Your firm is considering investing in a new line of business (the project). The introduction of the new business line is expected to increase the
Your firm is considering investing in a new line of business (the "project"). The introduction of the new business line is expected to increase the free cash flows generated by its existing lines of business by $100,000 a year. How should this effect be taken into account in computing the NPV of the new project? The project's incremental free cash flows are not affected. The incremental free cash flows of the project should be increased by $100,000 a year. The incremental free cash flows of the project should be reduced by $100,000 a year. The discount rate for the project should be changed to reflect the expected impact on the firm's current business lines.
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