After Spending $5 Million Developing a New MP3 Player,you Discover

question 46

Multiple Choice

After spending $5 million developing a new MP3 player,you discover that a competitor is about to introduce a new model similar to yours at a lower per unit price.The $5 million development cost:

• A)should be factored into your decision on whether or not to introduce your new MP3 player.
• B)should be ignored in your decision on whether or not to introduce your new MP3 player.
• C)should not be included while determining the opportunity cost of this investment.
• D)should be considered as fixed cost for the firm.

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Definitions:

Debt-Equity Ratio

The ratio demonstrating the proportionate role of debt and equity in a company's asset financing scheme.

Payout Ratio

The percentage of a company's earnings that is paid out to shareholders in the form of dividends.

Internal Growth Rate

The internal growth rate is a measure of an organization's ability to increase its sales and profit without issuing more stock or incurring new debt.

Full Capacity

A term referring to the maximum level of production or output that a facility can achieve under normal operating conditions.