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:

Nuclear Envelope

The double membrane structure that encloses the nucleus of a eukaryotic cell, providing a barrier between the nucleus and the cytoplasm.

Endoplasmic Reticulum

A network of membranous tubules within the cytoplasm of a cell, involved in protein and lipid synthesis and transport.

Ribosomes

Cellular structures responsible for protein synthesis, reading RNA to assemble amino acids into proteins.

Cellular Activity

The sum of all biochemical processes and actions carried out by cells, enabling growth, reproduction, and response to the environment.