You Discover the Engine-Oil Additive Your Scientists Developed Three Years

question 356

Multiple Choice

You discover the engine-oil additive your scientists developed three years ago makes a great men's after-shave once diluted properly using certain chemicals. How should you treat the original
$125,000 of R&D expenditures that went into developing the engine-oil additive for your present
Decision regarding whether or not to begin production of the after-shave?

• A) Treat it as a cash outflow three years ago for the current project; that is, find the future value today of the $125,000 spent three years ago.
• B) The full $125,000 should be treated as an initial investment today.
• C) As a cash inflow since the formula has obviously increased in value over the years.
• D) As an opportunity cost if the formula cannot presently be sold to another manufacturer.
• E) As a sunk cost since the R&D expenditure has no bearing on today's decision.

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Definitions:

Wholesalers

Businesses that buy large quantities of products from manufacturers or other suppliers and then sell smaller quantities to retailers or other businesses.

Marketing Mix

The combination of factors that can be controlled by a company to influence consumers to purchase its products, traditionally identified as product, price, place, and promotion.

"Place"

One of the four Ps in the marketing mix, referring to the location where a product or service is marketed or made available to consumers.

Existing Products

Existing products are items that are already available in the market and not newly launched.