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Equity Investments Q217

217A company is presented with two capital investment projects:
i. To replace existing machinery with productivity-improving capital equipment.
ii. To establish strong market research teams to match customer needs with product development. Both projects require the same initial outlay. If the company chooses the first project it most likely pursues a competitive strategy of:
  • Option : B
  • Explanation : Cost leadership entails minimizing costs and transferring the benefits of these reduced costs to consumers. In this manner, the company maintains slim margins, but generates its profitability through high volume. Since the company has preferred the strategy of improving productivity rather than marketability, the likelihood is that the company pursues a cost-leadership strategy.
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