A Start-Up Company Is Making a Decision on Whether to Develop

question 10

Multiple Choice

A start-up company is making a decision on whether to develop a new internet social networking site. The site will cost $1 million to develop, but it is unclear whether the new technology critical to the site will work correctly. If development is successful, it will cost an additional $20 million next year to advertise the site to Internet users. If the site becomes popular with Internet users, it is expected to generate a present value of $100 million in advertising revenue. There is a 10 per cent chance that the site will be successfully developed and subsequently become popular with Internet users. The company's cost of capital is 15 per cent. Should the company pursue the project?

• A) No, the project has a negative NPV.
• B) Yes, the project has a positive NPV.
• C) It doesn't matter. The project has zero NPV.
• D) There is not enough information to make a decision.

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Definitions:

Gender Conflict

The tension and struggle between genders, often arising from differences in societal roles, power inequality, and individual rights.

Engels

Friedrich Engels was a 19th-century German philosopher, social scientist, and author, who co-developed Marxist theory with Karl Marx.

Capitalism

An economic system based on private ownership of the means of production and their operation for profit, characterized by competitive markets and capital accumulation.

Communism

A political and economic ideology proposing a classless society in which all property is publicly owned and each person works and is paid according to their abilities and needs.