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?

Question

Quizplus · Accepted Answer

Pursuing the jet pack project may be validated if it leads to a profitable second project, as mentioned in choice B. Even if the first generation of jet packs has a negative NPV, the firm may still benefit in the long run by developing a cheaper and more affordable model. This strategy allows the firm to establish itself as a leader in the market and attract more consumers in the future. Choices A, C, and D do not provide sufficient justification for pursuing the project despite the negative NPV.

Consider a New Firm That Is Working on the First