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    Managers: Pricing Decisions and Investments

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    1) Managers should base pricing decisions on both cost and market factors. In addition, they must also consider legal issues. Describe the influence that the law has on pricing decisions.

    2) "It is impossible to use DCF methods for evaluating investments in research and development. There are no cost savings to measure, and we don't even know what products might come out of our R andD activities." This is a quote from an R and D manager who was asked to justify investment in a major research project based on its expected net present value. How would you respond to this statement? Do you agree or disagree? Explain.

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    Solution Preview

    1) Legal considerations certainly play a role in pricing. I can think of the following examples:
    a) Price discrimination: It is illegal for firms to set different prices based on certain factors.
    b) Sell below costs: It is illegal for firms to sell products below their costs in order ...

    Solution Summary

    This response discusses the influence that law has on pricing decisions and the importance of considered the expected net present value.