Explain differential pricing and then describe the four major types.
What will be an ideal response?
Differential pricing means charging different prices to different buyers for the same quality and quantity of product. For differential pricing to be effective, the market must consist of multiple segments with different price sensitivities. Differential pricing can occur in several ways, including negotiated pricing, secondary-market pricing, periodic discounting, and random discounting.Negotiated pricing occurs when the final price is established through bargaining between a seller and a customer. Negotiated pricing occurs in a number of industries and at all levels of distribution. Secondary-market pricing means setting one price for the primary target market and a different price for another market. Often the price charged in the secondary market is lower. However, when the costs of serving a secondary market are higher than normal, secondary-market customers may have to pay a higher price. Periodic discounting is the temporary reduction of prices on a patterned or systematic basis. Random discounting is employed to alleviate the problem of customers' knowing when discounting will occur, by reducing the prices temporarily on a nonsystematic basis.
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Answer the following statement true (T) or false (F)
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Indicate whether the statement is true or false
Mid-Town Products Inc purchased equipment costing $150,000. Annual operating cash inflows are expected to be $26,000 each year for fifteen years. At the end of the equipment's life, the salvage value is expected to be $18,000. If Mid-Town's cost of capital is 14 percent, what is the asset's net present value? (ignore income taxes)
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