Company underestimates costs or overestimates benefits

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A few of you older folks may remember "The New Coke". In 1985, Coca-Cola tried to introduce this drink as a replacement for its traditional Coke. They poured millions into promoting New Coke, but consumers never became enthusiastic, and after less than a year, the company gave up and abandoned the whole thing, at a huge loss. When companies make investment mistakes, what do you think that the source of the mistake is likely to be? Is it that the company underestimates the costs, or overestimates the benefits, or uses the wrong discount rate, or fails to understand the risk, or what?

Reference no: EM131899985

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