In this week’s lesson, it is evident that the CanGo executives would like to see the company grow. While there are many ideas that have been presented that would elevate the company and give it a greater presence, there are also many consequences to consider when embarking on new opportunities. CanGo must decide if the benefit of the opportunity cost is greater than the economic trade-off. One evident factor that is prohibiting CanGo’s expansion is lack of financial resources. With its deficiency in working capital, CanGo must now measure each opportunity by performing a cost benefit and recognizing trade-offs.
First, executives at CanGo have considered expansions in the areas of offering e-books, MP3 files, online gaming, and streaming audio and video. While most of these appear to be rather simple ventures to pursue, a cost benefit analysis will provide the company with exact figures that it would need to make an informed decision. This is evident in the analysis of the e-books. As noted in the memo from Liz. After thoroughly researching the market, it was found that the demand for e-books was not as high as expected. The price of e-books would have to comparable to that of a traditional book, or even lower, in order to generate reasonable sales. Charging $20.00 per book is a profitable cost, but the demand for e- books at that cost is not a strong return on investment. The e-books would have to be priced as low as $8.00 per book in order to see significant revenues. Unfortunately, after paying royalties, shipping, licenses, and other expenses, it was determined that the risk associated with e-books was not worthwhile.
The same type of analysis should be performed on each new product that CanGo is considering. By applying actual figures, the company can make informed decisions and determine if the risk worth the return on investment.
On the other hand, actual figures may not always be available for comparison. Then it is up to CanGo to pursue other...
Please join StudyMode to read the full document