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Planning & Budgeting: influence the law has on pricing decisions; value of DCF methods

Managers should base pricing decisions on both cost and market factors. In addition, they must also consider legal issues. Describe the .

"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&D activities." This is a quote from an R&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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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.

Sometimes the government will impose restrictions, like on trade or those capital controls...in a way that these things may make organizations operating at a higher cost...for example for a Multinational company (for their foreign subsidiaries), the manager may need to know very well about the political issues about that foreign place...of course it would be better to operate under a stable political environment, but sometimes "bad" governments (those corrupted and badly organized ones) may impose lots of restrictions to foreign companies, then the managers may need to consider that as well because the restrictions may affect the market - I mean the govt have the power to intervene normal market operations

Sometimes government may impose a ceiling price for some products as well, so company can not price their product higher than that, and they will need to cut cost in order to achieve their ideal profit margins.

Or when government set a union standard price for the product, the company could ...

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