Marginal Analysis Might Take the Form of Such Questions As,"Should

question 134

Multiple Choice

Marginal analysis might take the form of such questions as,"Should we extend our hours to include Sundays?" or "What if we put more apples in the pie?" The basic principle is that

• A) as long as a marketing action breaks even, the action is worth taking.
• B) expected incremental revenues from pricing and other marketing actions must more than offset incremental costs.
• C) you "don't rock the boat" if your program is making a profit; instead, you "leave well enough alone."
• D) if you are not willing to take risks, even if the numbers tell you otherwise, your business will ultimately fail.
• E) marketing and finance are two different animals: "If it feels right in your gut … go for it."

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Definitions:

Risk-Free Rate

The theoretical rate of return on an investment with zero risk, often represented by the yield on government securities like U.S. Treasury bonds.

Market Portfolio

A theoretical portfolio that contains all assets in the market, with each asset weighted according to its market capitalization.

Required Rate

The minimum annual percentage return that an investment must yield to be considered a viable option by an investor.

Constant Growth DDM

A valuation model that estimates the value of a dividend-paying stock by using predicted dividends that grow at a constant rate in perpetuity.