Kurt's Coffees Has a New Hot Drink in Mind That

question 19

Multiple Choice

Kurt's Coffees has a new hot drink in mind that is expected to generate sales of 24,000 units over its 2-year life.The initial cost for equipment is $69,500.This equipment will be depreciated straight-line to zero over 2 years and have no salvage value.The fixed costs are $17,800,and the contribution margin is $2.20.The tax rate is 35 percent,and the discount rate is 14 percent.Should this new drink be pursued? Why or why not?

• A)Yes;because the financial breakeven quantity of 19,014 units is less than expected sales
• B)Yes;because the financial breakeven quantity of 18,648 units is less than expected sales
• C)Yes;because the financial breakeven quantity of 29,101 units exceeds the expected sales
• D)No;because the financial breakeven quantity of 19,014 units is less than expected sales
• E)No;because the financial breakeven quantity of 29,101 units exceeds the expected sales

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Definitions:

Consumer Income

The total earnings of consumers, which determines their purchasing power and ability to consume goods and services.

Jewelry

Decorative items worn for personal adornment, such as rings, necklaces, earrings, and bracelets, which are often made from valuable materials.

Cross Elasticity of Demand

An indicator of the responsiveness in the demand for a certain good to shifts in the price of a different good, demonstrating how substitutable or complementary these two goods are to one another.

Complementary Products

Goods that are consumed together, where the use or consumption of one product increases the demand for another.