MACROSOFT decided to start developing the new word processor. After six months, the R&D phase is completed . If MACROSOFT's managers are risk-neutral, they should abandon the project if the expected revenues from sales of the new software are:
A) $599,000.
B) $449,000.
C) $299,000.
D) $399,000.

Question

Quizplus · Accepted Answer

If MACROSOFT's managers are risk-neutral, they should abandon the project only if the expected revenues from sales of the new software are less than the cost of the project. Assuming that the cost of the project is already sunk and non-recoverable, the expected revenues need to exceed the cost of the project to make it worth continuing. As there is no information on the cost, we can assume that it is the same as the expected revenues. Therefore, the expected revenues need to be more than $299,000 to continue the project. Among the given choices, only option C ($299,000) satisfies this condition, and therefore it is the best choice.

MACROSOFT Decided to Start Developing the New Word Processor