Quirk and Company has been busy analyzing a new product. It has determined that
ID: 2717763 • Letter: Q
Question
Quirk and Company has been busy analyzing a new product. It has determined that an operating cash flow of $18,500 will result in a zero net present value, which is a company requirement for project acceptance. The fixed costs are $14,000 and the contribution margin is $8.00. The company feels that it can realistically capture 10% of the 40,000 unit market for this product. Should the company develop the new product? Why or why not?
No; because 4,000 units of sales is less than the quantity required for a zero net present value
No; because the internal break-even point is greater than 4,000 units
Yes; because the firm can generate sufficient sales to obtain at least a zero net present value
Yes; because the project has an expected internal rate of return of 100% Yes; because the project will pay back on a discounted basis
Explanation / Answer
Market for Product in units 40,000.00 Co can capture 10% *40,000 4,000.00 Contribution Margin pu 8.00 Total Contribution 32,000.00 Fixed Costs(Assuming it to be project related) 14,000.00 Cash Flows 18,000.00 No; because 4,000 units of sales is less than the quantity required for a zero net present value
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.