Figure 9-I -Refer to Figure 9-I.The Manufacturers of Pepsi and Coca-Cola Must

question 91

Multiple Choice

Figure 9-I

-Refer to Figure 9-I.The manufacturers of Pepsi and Coca-Cola must each decide whether to launch new ad campaigns to advertise their respective soft drinks.The payoff matrix shows the profits earned from sales of Pepsi and Coca-Cola under alternative advertising scenarios.Based on this information, one can say that:

• A)if Pepsi introduces new ads and Coca-Cola does not, then profits from the sale of Pepsi equal $80 million.
• B)Coca-Cola will earn the greatest profit if it is advertised and Pepsi is not.
• C)Pepsi will earn the greatest profit if it introduces new ads.
• D)combined profits for the two firms will be greatest if neither firm were to introduce new ads.

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Definitions:

Investment Projects

Initiatives undertaken by businesses to invest in resources with the expectation of generating future revenues or reducing costs.

Discount Factor

A factor employed in the discounted cash flow (DCF) methodology to calculate the current value of anticipated cash flows.

Payback Period

The length of time it takes for an investment to generate cash flows sufficient to recover the initial cost of the investment.

Initial Investment

The initial amount of money invested in a project or business, often used to start or acquire it.