Consider a New Firm That Is Working on the First

question 110

Multiple Choice

Consider a new firm that is working on the first generation of long-awaited consumer jet packs. The project will take a tremendous amount of R&D expenditure. Even if the development is successful, manufacturing the first generation of jet packs is likely to be so expensive that only a selected few consumers will be able to afford them. The projected sales of the first generation of jet packs almost certainly won't cover the development and manufacturing costs-the project has a negative NPV. Which of these reasons would validate the firm's decision to pursue the jet pack project?

• A) If development is unsuccessful, it can abandon the project before spending money on manufacturing.
• B) If the project is successful, it may lead to a very profitable second project-a cheaper jet pack that will be a positive-NPV project.
• C) Because it is a high-tech firm, the cash flows generated by a project are not important to valuing the company.
• D) If development is successful, it allows managers to reach wide range of consumers.

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Definitions:

Psychological Perspective

An approach to understanding human behavior and mental processes that involves looking at psychological principles, theories, and research findings.

Allport

Refers to Gordon Allport, a pioneering psychologist known for his theory of personality and the study of prejudice.

Collective Conscious

A set of shared beliefs, ideas, and moral attitudes which operate as a unifying force within society, term coined by sociologist Émile Durkheim.

Statistical Analysis

The process of collecting, examining, and interpreting data to identify patterns and relationships.