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  1. NoRisk, which shows the valuation of a product launch, but ignores any of the risks;
  2. WithRisk, which shows the valuation of a product launch, not but does take into account eight different potential risk drivers;
  3. WithRiskOnTiming, which shows the valuation with the same general assumptions as those in situation #2, but now takes into account that the driver behind the risk in pricing and market share is that it is currently still unknown when the product can/will be launched.

The 'base inputs' for all three sheet (and NPV's) are the same, with development and market research expenses in 2019 and 2020, and an expected product launch in 2021. 

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As shown in the WithRisk sheet, when taking into account the various risk around expenses, market share, pricing, COGS, and marketing expenses, the following results are obtained:

eNPVP (NPV < 0)Low NPVHigh NPV
$7,874,83610%($1,719,058)$19,017,951

While the NPV based on all the 'base values' was $12.5M, the average of all the NPVs in the simulation (the eNPV) is only $7.9M. Also, the results show that there is a 10% probability that the NPV will be negative. The key risk drivers of the NPV are shown in the Tornado chart below.

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The results from this analysis show the following:

eNPVP (NPV < 0)Low NPVHigh NPV
$117,40953%($11,670,458)$13,958,002

Taking into account relationships in a model can however have a considerable influence on a model's results. Including this launch timing risk, the eNPV decreased to only $117K and there is a greater than 50% probability that the NPV will be negative. It also now becomes clear that the key risk driver is actually the launch timing, as seen in the Tornado chart below.

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