Consider a New Firm That Is Working on the First

question 78

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 select 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) None of these reasons support the decision to pursue the project.

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Definitions:

Team Leader

An individual who provides direction, instructions, and guidance to a group for the purpose of achieving a certain goal or completing a project.

Middle Managers

Employees who manage other managers or advanced professionals, acting as an intermediary between top management and front-line employees.

Overall Operations

Encompasses the total processes and activities undertaken by an organization to produce goods or provide services, including production, logistics, and management functions.

Effective Managers

are individuals who achieve desired results through the efficient use of resources and the successful direction of their team members.