Sentosa Company Is Considering Launching a New Product Which It

question 13

Multiple Choice

Sentosa Company is considering launching a new product which it believes has a 70% probability of success. The company is, however, considering undertaking an advertising campaign costing £60,000, which would increase the probability of success to 95%. If successful the product would generate income of £240,000 otherwise £84,000 would be received.
What is the maximum amount that the company should be prepared to pay for advertising?

• A) £34,800
• B) £21,000
• C) £39,000
• D) £60, 000

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Definitions:

Indirect Method

An approach used in cash flow statement preparation that adjusts net income for changes in balance sheet accounts to derive operating cash flows.

Operating Activities

Activities that relate to the primary operations of a company, such as sales, supply, production, and administrative services.

Salaries

Regular payments made to employees for their services, typically expressed as an annual sum but paid in regular installments.

Statement of Cash Flows

A financial report that shows cash inflows and outflows from operating, investing, and financing activities over a specific period.