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role of government in price determination and using DCF methods for determining the financial feasibility

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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&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 and include references.

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Solution Summary

Government's role in price determination as well as DCF methods for determining the financial feasibility are featured topics.

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These are two separate questions, one requiring you to state the role of government in price determination and the other showing the futility of using DCF methods for determining the financial feasibility of R&D projects.
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<br><br>The question makes an assumption that the law has a uniform effect on pricing, this is not substantiated by evidence. For instance, a western Europe country would not have many restrictions on pricing of food. However, a developing country would have serious restrictions on food prices. Similarly, there is an assumption in the question that the returns from R&D cannot be easily be estimated, this may be true in case of pure research which is usually carried out by the governments and is financed by them however in case of companies, which mainly carry out applied research the returns are usually estimable an so can be predicted with a reasonable degree of accuracy.
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<br><br>Given below is a template to help you answer the questions.
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<br><br>1) Managers should base pricing decisions on ...

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