Assume MACROSOFT is planning to develop and sell a new word processor. It estimates that R&D expenses will amount to $300,000 for this new software, while it will have to invest an additional $150,000 to advertise and distribute the new product. If MACROSOFT's managers are risk-neutral, they will undertake this project if the expected revenues from the sales of the new software are:
A) at least $150,000.
B) No return is necessary in the short term.
C) at least $300,000.
D) at least $450,000.

Question

Quizplus · Accepted Answer

In order for MACROSOFT to undertake the project, the expected revenues from the sales of the new software must be greater than the sum of the R&D expenses and the advertising and distribution expenses, which is $450,000 ($300,000 + $150,000). Therefore, the expected revenues must be at least $450,000 for MACROSOFT to undertake this project. Option D is the only choice that satisfies this requirement.

Assume MACROSOFT Is Planning to Develop and Sell a New