AB is a global car manufacturer.

Vendor: CIMA
Product: E3
Update on: Jul 29, 2025
Questions: 280

CIMA E3 Question Answer

AB is a global car manufacturer. Management has agreed to spend $20 million on researching a new type of engine that uses liquid hydrogen to power the car. It believes it is important for AB to take a first step in developing this radical and uncertain new technology.

The $20 million will finance the research only and the program will last two years. Providing the research is successful, after two years it would cost a further $40 million to develop a car to sell. This development would take a further three years. Management is concerned that the international car market may not be willing to buy hydrogen powered cars for at least six years from now.

Which of the following options would NOT be available to AB after two years?

To invest a further $40 million in developing a car for sale.

To ignore the research findings and not commercialise any innovations.

To delay investment in building a hydrogen car until the market demand becomes clearer.

To seek to recover the $20 million it has spent because the research has yielded no commercial benefit.