As an employee at a software company, you devise a plan for a novel AI model that will collect large data and predict the outcome of World Cup matches in real time. You propose an expensive service for gamblers. It will cost $2 million for your firm to develop and you’re confident you can launch before the June 2026 start. Which is the most persuasive argument you can present to management?

Question

BlackTom AI · Accepted Answer

Starting with a broad view of what management might want: a persuasive argument should clearly connect cash flows, risk, timing, and strategic value to a decision.
Option 1: 'We are highly likely to get our money back by the end of the World Cup in July 2026. It’s possible this could turn into an ongoing business if we stay ahead of the competition.' This statement is appealing in its reassurance, but it is vague on the actual financials. It asserts a likelihood of repayment without providing a quantified estimate, which makes it hard to assess risk, timing, or the magnitude of upside. It also conflates the idea of “getting money back” with profitability and does not address discounting, capital cost, or the probability-adjusted value of cash flows. In short, the claim relies on intuition rather than a rigorous financial model, and it omits the explicit assumption about NPV or expected value, which are essential for capital budgeting decisions.
Option 2: 'I have carefully modeled the cash flows, assuming a 40% chance the business will last beyond the end of the World Cup in July 2026. Discounting at the WACC, the NPV is +$1.25 million.' This option foregrounds a quantitative approach: it specifies an explicit probability for a key risk (longevity beyond a target date), applies the discount rate (WACC), and yields a positive net present value. Such detail addresses timing, risk, and value, which are core components of a persuasive business case. However, a critical reader would want to know the sensitivity of the NPV to the probability assumption, the discount rate used, and the robustness across alternative scenarios (e.g., higher costs, lower revenues, regulatory or competitive risks). While the statement is stronger on financial rigor, effective persuasion would strengthen it by outlining key drivers, risk mitigations, and a range of outcomes rather than a single point estimate.
Option 1 analysis contrast: the first option lacks numeric backing and fails to connect the claim to a quantified expectation of value, which makes it less credible for decision-makers evaluating capital investment. It also leaves questions about how a potential ongoing business would be built and sustained, beyond a vague notion of staying ahead of competition.
Option 2 analysis contrast: the second option demonstrates a disciplined budgeting mindset by presenting an explicit NPV calculation and a probability assumption. This aligns with common financial decision-making practices and provides a clear, measurable benchmark (+$1.25 million). The potential limitation lies in its dependence on the chosen probability and discount rate; without testing sensitivity, the argument could be fragile if the underlying assumptions shift. Overall, among the two options, the second offers a stronger, more defensible basis for a go/no-go decision due to its quantitative framing and use of NPV as a decision metric.

IFEPIA7022_001_2025_3 - Economics of Finance EOF Final - Dec 16, 2025

查看解析

登录即可查看完整答案

类似问题

A project has a profitability index of 2.2, and the present value of cash outflows is $25 million. Find the net present value of this project, which is _____ million.

Question at position 1 (3 marks, difficulty level: Easy) What is the NPV of this project? Assume the cost of capital is 9%. [table] Year | Project A 0 | -300,000 1 | 250,000 2 | 90,000 3 | 90,000 4 | 100,000 5 | 110,000 [/table]$205,873.92$216,940.48$234,156.78$228,454.01

Question at position 1 (3 marks, difficulty level: Easy) What is the NPV of this project? Assume the cost of capital is 9%. [table] Year | Project A 0 | -300,000 1 | 250,000 2 | 90,000 3 | 90,000 4 | 100,000 5 | 110,000 [/table]$228,454.01$216,940.48$205,873.92$234,156.78

Question at position 1 (3 marks, difficulty level: Easy) What is the NPV of this project? Assume the cost of capital is 9%. [table] Year | Project A 0 | -300,000 1 | 250,000 2 | 90,000 3 | 90,000 4 | 100,000 5 | 110,000 [/table]$216,940.48$234,156.78$205,873.92$228,454.01

更多留学生实用工具

考试浏览器助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单