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Plublems & Applications (Ch 01) Back to Assignment Attempts: Average: /1 5. Problems and Applications Q5 The company that you manage has invested $5 million in developing a new product, but the development is not quite finished. At a recent meeting your salespeople report that the introduction of competing products has reduced the expected sales of your new product to $4.5 million. f t would cost $3 million to finish development and make the product, you Y go ahead and do so. The most you should pay to complete million. Grade It Now Continue without saving
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Answer #1

Since, it would cost $ 3 million to finish the development and make the product, I will go ahead and do so.

If I will quit at this stage will lose $5 million. However, if I pay $ 3 million, I could gin back $ 4.5 million. Therefore, total loss is

$ 4.5 million - $ 5 million = - $ 0.5 million

I would pay no more than $ 4.5 million to finish and make the new product. Because if I pay $ 4.5 million to finish, I could lose $ 5 million just as much as loss of quitting the development.

Please contact if having any query thank you.

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