Consider the Following Scenario to Answer the Questions That Follow

question 94

Multiple Choice

Consider the following scenario to answer the questions that follow.
Suppose a large electronics retailer has 1,000 salespeople who sell new computers and new computer service plans. The retailer is interested in increasing the percentage of customers who purchase a computer service plan (or warranty) with their new computers. The retailer decides to test two sales pitches by splitting its salespeople into two groups of 500 and giving each group a slightly different sales pitch to recite to customers prior to the consummation of a computer sale.
The first group of salespeople recites the following sales pitch: "Before you pay, I wanted to let you know that all of our new computers come automatically with a warranty that adds $150 to the purchase price. If you wish to opt out and decline the warranty, all you need to do is fill out and sign a form attesting to your refusal."
The second group of salespeople recites the following sales pitch: "Before you pay, I wanted to let you know that, although none of our new computers come automatically with a warranty, you can purchase one by adding $150 to the purchase price. If you wish to opt in and accept the warranty, all you need to do is fill out and sign a form attesting to your acceptance."
-Suppose that 84% of customers hearing the sales pitch from the first group purchased the warranty and that 19% of the customers hearing the sales pitch from the second group purchased the warranty.The managers concluded that ________ were likely present and changed company policy such that all salespeople are required to recite the sales pitch given by the first group.

• A) fairness effects
• B) rational effects
• C) electronic aptitude effects
• D) concerns about fairness
• E) framing effects

Comprehend the principle of incremental cash flow in evaluating projects and its focus on both positive and negative impacts.

Understand the irrelevance of sunk costs and the relevance of taxes in capital budgeting decisions.

Distinguish between total and incremental cash flows and their relations to income taxes.

Learn the two-step process of capital budgeting, encompassing cash flow estimation and evaluation techniques.

---

Definitions:

Wind Power

The conversion of wind energy into a usable form of power, typically electricity, using wind turbines.

Interest Rate

Interest payments expressed as a percentage of the loan.

Investment

The allocation of resources, usually financial, to generate income or profit over time.

Physical Capital

Tangible assets used in the production of goods and services, such as machinery, buildings, and equipment.