Capital Budgeting Considerations A major college textbook publisher has an existing finance textbook. The publisher is debating whether or not to produce an “essentialized” version, meaning a shorter (and lower-priced) book. What are some of the considerations that should come into play?
To answer the next three questions, refer to the following example. In 2003, Porsche unveiled its new sports utility vehicle (SUV), the Cayenne. With a price tag of over $40,000, the original Cayenne went from 0 to 62 mph in 9.7 seconds. Porsche’s decision to enter the SUV market was in response to the runaway success of other high-priced SUVs such as the Mercedes-Benz M-class. Vehicles in this class had generated years of very high profits. The Cayenne certainly spiced up the market, and Porsche subsequently introduced the Cayenne Turbo S, which goes from 0 to 62 mph in 3.8 seconds and has a top speed of 176 mph. The price tag for the Cayenne Turbo S in 2016? Over $157,000!
Some analysts questioned Porsche’s entry into the luxury SUV market. The analysts were concerned not only that Porsche was a late entry into the market, but also that the introduction of the Cayenne would damage Porsche’s reputation as a maker of high-performance automobiles.