Monday, May 24, 2010


Cash Flow Estimates for a New Product

A new product may be a slight modification of the firm’s existing product or it may be altogether different, innovative product. The cash flow estimates for a new product will depend on forecasts of sales and operating expenses. Sales forecasts require information on the on the quantity of sales and the price of the product. The selling price and sales quantity depend on the nature of competition. Anticipating the competitors’ reactions when an innovative product is introduced is not easy. Thus, the estimation of cash flows for a new product poses considerable difficulty and challenge. The marketing executives developing sales forecasts should be aware with the forecasting techniques as well as they should have the ability of understanding the dynamics of competition. Hence the cash flow estimation for a new product is both an art and a science.

Cash Flow Estimates for Replacement Decision

Replacement decisions include decisions to replace the existing assets with new assets. Firms undertake replacement decisions either for cost reduction or quality improvement or both. It is relatively easy to estimate cash flow for replacement decision. Generally, these decisions do not involve sales forecasts. They need an assessment of the possible cost saving or improvement in the quality of product, which, to a large extent, depends on the technical specifications of the requirement.

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