Question

You realize that the NPV of a project under consideration is $0. How would you proceed with the project? Discuss - in a maximum of half a page length - the principles that will guide your decision-making for this project.

Answer 1

As the NPV of the project is 0 it makes little sense economically to go with the project with one must see the other aspect of the project which can give benefit to the company.

For eg., if the project under consideration being carried out for the benefit of society and if doing the projects gives intangible benefit to the company and drive up the reputation then one must go for the project so that in the future goodwill of the company can be increased.

Another example is that if by carrying out the project if the company gets pre-qualification for bidding some other projects which may give the company a lot of profits then the company must go ahead with the project as so company will be eligible for carrying out more so projects which will lead to growth in top line as well as bottom line.

If the market is slow and if the company does not have any other projects in hand hence to utilize the resource and to pay variable cost company may take up the project.

If the company doesn't find any meaningful advantage whether tangible or intangible then the company must not take up the project as it won't be giving any bottom-line advantage to the company.