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,and 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)at least $100,000.
C)at least $300,000.
D)at least $450,000.

Question

Quizplus · Accepted Answer

To determine the expected revenues needed to undertake the project, MACROSOFT needs to consider the total cost of the project and add a desired profit margin. The total cost of the project is $300,000 (R&D expenses) + $150,000 (advertising and distribution expenses) = $450,000. Assuming MACROSOFT wants to earn a profit equal to the project cost, it would need to generate revenues of $450,000 to break even. Therefore, the answer is D, which states that the expected revenues should be at least $450,000.

Assume MACROSOFT Is Planning to Develop and Sell a New