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Marketing, Accounting, Management: breakeven, inelastic demand, FASB, pooling

30 MC questions - please see attachment for questions 31 through 60.


31. There are other issues concerning pricing and risk that the product team is considering. What of the following would most likely lead to the best outcome for the new product?

(A) A low-price strategy would maximize revenues by significantly increasing sales.
(B) Pricing the product at the high end of the soft-drink pricing scale would enhance revenue and the product's image.
(C) The product's hurdle rate should be 8.6%
(D) Since the market structure us conducive to constant price changes, the price of the product should be increased regularly.


Solution Preview

Answer 31. B. A is incorrect as the demand is not elastic. C the company WACC is 12.6% and this needs to be increased by 4% for high risk D constant price changes would only spoil the image of the brand and not help the company. B is correct because the demand is inelastic, high price would not adversely affect the demand for the new product and would enhance the image of the new product because of premium pricing and favorable perceptions leading to premium positioning.

Answer 32. B. Over the five year period the profit will remain the same because the entire value is to be written off over the five year period, so even though the net profit will be lower in the first years, it will be compensated will larger profits in later years. However, in case of the breakeven point, as the profit is lower in the first year the break-even point will increase.

Answer 33. D. If there were barriers to entry then technology would be difficult to access, retailers would be reluctant to grant shelf space to a new entrant and those in the market would cut prices to maintain share. However, if the market is in a state of rapid growth, this means that there are few or no significant entry barriers.

Answer 34. B. Decreased revenue. With an inelastic demand it would be very imprudent to reduce prices. This will not significantly affect the market share as the demand is inelastic, only if the demand was elastic would the market share change dramatically to change in price.

Answer 35. B. MNO has a serious solvency problem the debt ratio of 67.04 tells this startling story. MNO is not more liquid than other companies, its liquidity ratio is lower than the industry average, it is not very good at controlling expenses; see the difference between the gross profit margin and operating profit margin and its fixed asset and total asset turnover is less than the industry average, so it is not using its assets well.

Answer 36. D. The fixed asset turnover ratio is lower than the industry average. The accounts receivable are collected faster than industry average, the inventory turnover is faster than the industry and the current ratio is lower than the industry average.

Answer 37 A. The lawn mowers are for mowing lawns and problems encountered in mowing lawn can mar the performance and the image of the mower. The act of purchasing does not need a survey for determining consumer problems associated with mowing, nor does a survey of the consumer emotions. A list of problems and a list of brands would not be useful because it would assume that the respondent has experience with all the brands listed!

Answer 38. A. Use mass media to reach the consumers who have not been seeking information, so any point of ...

Solution Summary

In the solution, each of the 30 questions has a response and a couple of sentences to explain the response regarding marketing, accounting and management.