Question

Can you introduce one case regarding the positive externality, and explain it with details? How does the externality impact the company’s project, and how you evaluate it? Project externality should be considered carefully when you attempt to list potential projects and do capital budgeting as a financial manager.Briefly talk about its outcomes, and attach your evaluation.

Answer 1

Positive externality is an economic concept which occurs when the consumption or production of a good will be benefiting third party who is not a party to the contract.

Case regarding the positive externality will be businesses trying to impose ethical norms and fulfill the corporate social responsibility and producing the goods according to the environmental standards so that it will be beneficial to the environment and society as a whole and it will also benefit the business but the benefit of the society will be larger than the benefit of the business as the society will be getting good environmental friendly products.

This positive externalities should be considered by the manager because it will be helpful for the manager in order to maximize their profits in the long run because it may be leading to higher costs in the short run but it will eventually lead to profit generation in the long run as this is a unique product and this will be leading to huge attraction and demand from the society.

When I will be doing the capital evaluation, I would be looking in for all the benefits which are generated by these projects in the future as well because these products are just not related to project analysis but it is living for a value generation for the company in the long run and it is leading to increased in the overall shareholders wealth in the long run and it will also lead to increase in the reputation so it will be increasing the overall quantitative aspect of the company and sustainable growth and survival of the company in the long run.