NO.173 A tech company has just completed market research on a potential new proj
ID: 1134229 • Letter: N
Question
NO.173 A tech company has just completed market research on a potential new project that would last three years. The research cost $150,000 and determined that the project is expected to bring in 200,000 of revenue annually. The company will have to lease a plant for a total three-year cost of 100,000 and calculates that materials and labor will cost 60 percent of revenue. Given this information, what will economic profits be for the three years, and should the project be adopted? A. -$10,000. No, the project should not be adopted. B. $140,000. Yes, the project should be adopted. C. $140,000. No, the project should not be adopted. D. $240,000. Yes, the project should be adopted.Explanation / Answer
Total revenue of the comapny for the three years of the project = $200000*3 = $600000
Total costs of the project = Research costs + lease costs + material and labour costs
= $150000 + $100000 + 60 % of 600000 = 150000+ 100000 + 360000 = 610000
Total profits = Total revenue - Total costs = 600000 - 610000 = -10000
Therefore, by adopting the project, there is a loss of $10000, so it must not be taken up.
The correct option is A.
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