Planning And Budgeting

When a value has been assigned it is called a price. The pricing strategy is believed to be the troubling area of the marketing decision making. Methods used are setting profitable prices and justifiable prices. These strategies can be sometimes based on costs, demand, or even the prices of competing products. Pricing is the element of the marketing mix that is the least understood and appreciated. There are always and will be legal constraints that are enforced by the federal government, state governments, and U.S. antitrust legislation that influence pricing decisions. One such federal legislation act called the Robinson-Patman Act of 1936 prohibits price discrimination on prices that are not based on differential cost. In eliminating competition it prohibits selling at outrageous low prices. Unfair-trade laws have passed in over twenty states. This constraint requires that sellers maintain a minimum price for merchandise that is comparable. In most states statutes have been enacted that once permitted manufacturer's to stipulate a minimum retail price for their product.

I have to agree with the statement "It is impossible to use DCF methods for evaluating investments in research and development". Despite the failure of taking flexibility into account managers have had to rely on the DCF methods for a long time. The DCF methods criterion has been modified to help deal with this problem. I would have to say that the capital budgeting method which gives real option would be a better choice in evaluating investments in research and development. The major reason for that is because it does take into consideration the managerial flexibility. This method is based on the idea of using option valuation in valuing real investments (Horngren, Sundem, & Stratton, 2005). The concept is old but the real options term was introduced by Myers in 1977 right after the breakthrough of option pricing by Black Scholes in 1973. It