Question

why should cash flow be projected for a new product and what other factors should be included in the analysis?

Answer 1

The reasons for which the cash flow is projected regarding the new product are as follows -

1.) The projection of cash flow is necessary while launching new product by the company because it helps the business regarding the expected cash flows (inflows and outflows) in future in regard with the sale of the new product in the market.

2.) Projecting cash flow for a new product helps determining the company to keep an eye on the business financial health in the market and try their best to keep it at the top in the industry.

3.) The launching of the new product is not always means that it will only give profits to the company may be it will not catch new buyers or customers and in this situation the company will not launch the new product because the launching will decrease the company's net profit and if there will be more cash outflows for the cost on new product, all this information can be gained through the projection of cash flows.

The other factor which are included is mentioned below :

The risk is the main factor which is necessary to keep in mind while launching new product because not always business receive more profits, business can also suffer loss. So to evaluate the risk of the product launch the company projects the cash flows in regard to ensure that there will be no situation of the loss, which the company may suffer in future due to the product launch.